Create an Amortization Based Loan Contract
Amortizing a loan involves establishing a series of monthly payments that provide the lender with an interest amount based on the unpaid principal balance in a given month. Also, the principal repayments cause the unpaid principal balance to be zero at the end of the loan. The amount of each monthly payment can be identical, where the interest component of each payment keeps decreasing and the principal component of each payment keeps increasing as the loan progresses. Or, the borrower may request for equal principal component in all the payments, whereby, the installment and interest amount, both, reduce over the life of the contract.
Amortization based loans (AMZ loans) also support flexible repayment, where lenders can set up different interest rates to be applied over the life of the contract. The Amortization schedule in such cases is generated considering these different interest rates and times when these must apply.
In AMZ loans, the cost of credit is fixed, and the amortization schedule is strictly followed for the payments. The interest is calculated as per the amortization schedule, and not by the last accrual date. For example, a payment of 200 is due on January 5 as per the amortization schedule, with principal as 80 and interest as 120. The borrower makes a payment on January 12 for 200. The interest recovered remains as 120, and is not increased by the interest accrued between January 5 and January 12.
However, in case of Flexible AMZ loans, you can capture the interest accrued since the last accrual date, using the Interest Accrued field. In addition, the "Auto Create Excess Transaction" option is selected by default in the Flexible AMZ loan product definition. Whenever a payment in excess of the due amount is received, an Excess LPT is created for the balance amount. You can set up a threshold value for excess payments beyond which, the excess payment causes a reschedule of the contract.
Prerequisites
The following are the prerequisites to creating an amortization based loan:
The user is assigned to a company.
A lending product of type Amortization Based Loan or Flexible Amortization Based Loan exists.
The lending product is assigned to the company.
Fees and fee set are defined.
Steps
Perform the following steps to create an amortization based loan contract:
Log in to your Salesforce account.
Click CL Contracts.
Click New.
Note:If you do not see the New button, then perform the steps provided in the Add the New Button in CL Contract Page for Lightning View of the CL Loan Administration Guide.
Select the Amortization Based Loan or Flexible Amz Based Loan as Record Type of New Record.
Follow the steps listed in section Creating a Loan Contract to create the amortization based loan contract.
Once the contract is created, the amortization schedule is generated and is available under the repayment schedule for the given term and start date.
| In case of | The Repayment Schedule displays | ||||||||||||||||||||||||||||||
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| Equated Monthly Installment | An equal amount for each payment. For example, if the principal is 10000 and interest to be recovered over the life of the contract is 1000. Then, the total , amount is 11000. This amount is divided across the loan term such that the payment amount received is equal on every payment date.
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| Equated Principal | A constant principal amount but reducing monthly installment and interest amount. For example, loan amount is 10000, loan term is 12 months, and repayment procedure is Equated Principal. The monthly installment and interest amount decreases while principal amount remains equal for every payment, as shown below.
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