Zero-Amount Loans
Overview
Sometimes lenders may require an insurance-like loan with a periodic fee to be charged with it. Such loans are required to have zero disbursements. With the Oxygen release, you can achieve this by creating a zero-amount loan.
A zero-amount loan can be created by disbursing zero amount and charging a periodic fee that can be added to the bill.
Key Concepts
General Details
You can add any type of fee, in addition to the Periodic Fee, to a zero-amount loan.
Principal Remaining and Interest Remaining are always zero for such loans, and only Fee Remaining is included in the calculations.
A zero-loan behaves like a normal loan except for the actions that cannot be performed due to a zero loan amount such as Principal Adjustment, and more. For example, since there is no principal amount in a zero-amount loan, you cannot change the principal incase of a Principal Adjustment.
Closure
A zero-amount loan closes when it reaches its maturity date and no dues are left to be paid.
The LoanClosureJob job closes the loans that are marked for Active - Marked for Closure.
A zero-amount loan can also be closed if you do a payoff.
A zero-amount loan does not close for an FIT-enabled zero-amount loan if it has not crossed the Draw Period End Date even when the sum of Principal Remaining, Interest Remaining, and Fees Remaining is zero.
You can also manually close the loan. To know how to close a loan manually, see Manual Closure.
Delinquency
Delinquency is always calculated on the bills, and does not depend on whether the Periodic Fee frequency differs from the Billing Frequency.
Out of Scope
-
The following functionalities are not impacted by a zero-amount loan:
Deposits
Additional Interest
Investors
Create a Zero-Amount Loan
Prerequisites
Before creating a zero-amount loan, ensure that the following prerequisites are met:
-
While creating a lending product, a fee set with the following parameter values of the Periodic Fee is created:
Field Name Values Include in Dues True Include in Schedules True Time of charge Periodic Fees Fee Calculation Method Can be one of the following:
- Fixed
- Custom
Amount Any amount as fee amount Add Fee Amount to Bill flag is enabled on the lending product.
-
Either the Funding in Tranches flag is enabled on the lending product, or the Validation Rule for the Loan Amount is disabled in the Setup.
Note:To disable the validation rule for the loan amount, perform the following steps:
Click Setup.
Click Object Manager.
In the Quick Find box, search for CL Contract.
Click Validation Rules.
Click Loan_Amount_Check.
Click Edit.
Clear the Active checkbox.
Click Save.
Steps
To create a zero-amount loan, perform the following steps:
While creating a loan contract, specify the value of the Loan Amount as 0.
Disburse a loan with the value of the Transaction Amount as 0.
Example
Let us understand how a zero-amount loan works with an example.
Let us first perform the following steps to create a zero-amount loan:
Now, let us understand the effects of creating a zero-amount loan with the help of the following sections:
Create a Zero-Amount Loan
1. Create a Fee
Let us assume that we have created a fee with the following details:
Field | Value |
---|---|
Amount | $100 |
Periodic Fee Amount Type |
Total Amount
Note:
This implies that the fee is divided by the number of terms of a loan contract. |
Accrual Frequency | Month-end |
Include in Dues | True |
Include in Schedules | True |
Fee Calculation Method | Fixed |
2. Create a Zero-Amount Loan Contract
Let us create a zero-loan amount with the following details and a Periodic Fee set that has the Periodic Fee defined in the preceding step:
Field | Value |
---|---|
Loan Amount | $0 |
Add Fee Amount To Bill |
True
Note:
This adds the fee to the bills. |
3. Disburse a Zero Amount
Let us now disburse an amount of zero.
Results
Contract Details
The contract has the following details:
Field | Value |
---|---|
Principal Remaining | $0 |
Fees Remaining | $8.33 |
Interest Remaining | $0 |
AMZ Schedule
After a month, system generates an AMZ schedule with a DUE AMOUNT of $8.33.
Field | Value |
---|---|
Due Amount |
fee amount/terms = $100/12 = $8.33.
Note:
This is because the Periodic Fee Amount Type = Total Amount. |
Charge
System creates a charge of $8.33.
Charge is included in the Bill because Add Fee Amount To Bill is enabled on the contract.
Bill
System creates a bill of Due Amount $8.33.
Payoff
Before Payoff
Before Payoff, the contract has the following details:
Field | Value |
---|---|
Today's Payoff | $8.33 |
Payment Amount | $8.33 |
Status | Active - Good Standing |
Recording a Payoff
Payoff is the sum of all charges in the contract.
After a Payoff
After a payoff of $8.33, the loan closes with the following details:
Field | Value |
---|---|
Today's Payoff | $0.00 |
Payment Amount | $0.00 |
Status | Closed - Obligations met |
When a payoff is made:
LDT is marked cleared.
Charges are marked as paid.
Payments or LPTs are marked as cleared.
Bills are marked as satisfied.