Amortization Based Loan Products
CL Loan offers two types of amortization based loan products. In amortization based 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 Jan 12 for 200.
In Amortization (AMZ) based loans , the interest recovered remains as 120, and is not increased by the interest accrued between Jan 5 and Jan 12.
In Flexible Amortization based (F-AMZ) loans, the interest accrued between Jan 5 and Jan 12 adds to the interest component.
Difference between AMZ and F-AMZ loan products
| Flexible Amortization Based Loans | Amortization Based Loans |
|---|---|
Payoff amount includes:
| Payoff amount includes:
|
When disbursal happens, interest remaining is set to 0. Last accrual date in this case is the disbursal date. | When disbursal happens, interest remaining is updated to the total interest recoverable. For example, loan is for 10,000 and the interest for the entire tenure, say 12 terms, is 600. When loan is disbursed, interest remaining = 600. Whenever a payment is received, the interest as per the billed amount is recovered. |
Bill is created for the payment amount as per the amortization schedule. In addition, the interest remaining is updated to the interest amount of the bill. For example, bill amount = 1000, where principal = 800 and interest = 200. Then, when bill is generated, interest remaining becomes 200. Last accrual date is updated to the bill generation date. | Bill is created for the payment amount as per the amortization schedule. |
| You can capture the accrued interest amount on the loan contract. The Interest Accrued field displays the interest accrued from the last accrual date till the current date. | Interest accrued is not captured on the loan contract. |
| For Flexible AMZ loans, it is mandatory to select the interest posting checkbox. The interest posting job (InterestPostingAmzJob) creates regular interest posting transactions (IPTs), which represent how much principal and interest is due/posted) and interest on arrears (IOA) type transactions, which represent interest generated on unpaid due principal and or interest. | Interest posting is not possible. |
If excess payment is received, the amount beyond the interest+principal due is recorded as Excess.
| If excess payment is received, the amount beyond the interest+principal due is recorded as Excess.
|
Lenders who have installed a CL Loan version earlier than 2.2003 must continue to use the Amortization Based Loan product to create amortized loan contracts and service existing contracts. If they want to migrate the existing contracts to the Flexible Amortization Based Loan product type, they must contact Cloud Lending Solutions. However, lenders who are installing CL Loan for the first time, must use the Flexible Amortization Based Loan product, to leverage upcoming functionality for amortized loans.
Creating Amortization-Based Loan Products
Prerequisites
None.
Steps
Perform the following steps to create an Amortization Based Loan product:
Log in to your Salesforce account.
Click Servicing Configuration.
Go to Product > Product Management.
Click Create New Lending Product.
Select the Record Type of new record as Amz Based Loan Product Record Type or Flexible AMZ Based Loan Product Record Type.
Click Continue. Once you proceed, the New Lending Product page is displayed with sections such as Information, Advance, Fee, Term, Interest, Funding Options, Grace and Tolerance, and Accounting.
Provide the details as explained in the following table:
Field Name Action and Information Information Interest Calculation Method Select the calculation method for calculating interest.
This decides the basis for interest computation.
Supported Options:
- Declining Balance - This is based on the outstanding loan balance. It is the balance money that remains in the borrower’s hands as the loan gets repaid during the loan term. As the borrower repays installments, the outstanding loan principal declines over time. The interest is then charged only on this outstanding principal.
- Flat Rate - Here, the Interest is computed on the original amount every month.
- Flexible Repayment - Here, the interest is calculated on the reduced principal balance with possible changes in interest rate over the life of the contract.
Repayment Procedure Select the procedure to be followed to create the repayment schedule.
Supported Options:
- Equal Monthly Installments - The amount of each payment is identical, wherein the interest component of each payment decreases and the principal component of each payment increases during the life cycle of a loan.
- Flexible - The installment amount changes periodically.
- Equated Principal - The principal amount is divided equally over the loan tenure, and therefore. remains constant each month.The interest is calculated based on the principal outstanding, and over the life cycle of the loan, both the installment amount and the interest amount decreases. If this repayment method is selected, Regenerate Principal and Interest Payment, and Payment Amount Change actions are not permitted.
Payment Application Order Select the Payment Application Order. This can be Spread, where dues are satisfied in the order of the spread, or Date, where dues are satisfied in chronological order and as per the amounts of the bills. By default, the defined spread for the product is used.
This decides the basis for applying payments received from the borrower to satisfy dues relating to bills, repayment schedule, charges, and interest posting transactions (IPTs).
Spread The payments are applied to the components of the selected payment spread in the listed order. This option considers the principal, interest and fees remaining, if fees are part of the spread. Date The payments are satisfied as per the amounts listed in the oldest unpaid bill first and then in chronological order of the bills. This option considers the bill amounts for applying the payment. For example,
Principal Remaining = 5000, Interest Remaining = 2000.
Payment Spread = Interest, Principal, Fees.
Bill 1 = 700 (Principal = 500, Interest = 200), and does not include fee amount.
Payment Received = 700, and bill is satisfied.
Now,
If Spread option is selected:
The entire 700 of Bill 1 is applied to Interest.
Interest Remaining = 1300, Principal Remaining remains 5000. Once the entire interest is paid up similarly through future bills, the system starts to pay up the principal.
If Date option is selected:
The first bill, Bill 1 is satisfied first. Of the 700, 200 is applied to Interest, and 500 is applied to Principal.
Interest Remaining = 1800, Principal Remaining = 4500.
Subsequently, amounts as per Bill 2, Bill 3 and so on, are satisfied as per their respective amounts.
Note:If you are upgrading from an earlier version of CL Loan, you must add this field to the amortized loan product page. For information on the steps to do this, refer to section Payment Application Order for LOC and Flexible AMZ loans.
Excess Threshold % for Reschedule
If you have selected repayment method as Equated Principal:
- Optionally specify the Excess Threshold % for Reschedule as the minimum percentage of principal remaining that must be received as excess payment to trigger an automatic reschedule of the contract.
- Optionally, select the Reschedule Option on Excess Payment to indicate how the contract must be rescheduled. You can either Change the Payment Amount and keep the tenure same, or Keep Same Payment Amount and change the tenure of the contract.
This field indicates the percentage of principal remaining that must be received as excess payment to trigger an automatic reschedule of the loan.
A null value indicates that a reschedule must not happen, and CL Loan adopts the default behavior for applying excess payments to the dues.
A zero value indicates that a reschedule must always happen, irrespective of the excess payment amount.
Reschedule Option on Excess Payment The method for rescheduling a loan triggered by excess payment. This can be:
Change Payment Amount - keeps loan tenure same but changes the payment amount.
Keep Same Payment Amount - keeps payment amount same but changes the loan tenure.
Interest Rate Change Method
Select the Interest Rate Change Method. This decides whether schedules must be regenerated by changing the payment amount or contract duration when the rate of interest is changed for the loan contract. If no option is selected, schedules are not regenerated.
The method for regenerating the payment schedule upon an interest rate change.
Select To Keep Same Payment Amount Change the interest rate and generate a new schedule keeping the payment amount unchanged. If current interest rate is higher, the additional dues generated (interest and principal) are adjusted in the last payment by the borrower. If interest rate reduces, the loan closes earlier than the original tenure.
Delinquency status and old bills remain as are. New schedule includes the old schedule till rate change transaction date and the new schedule with changed term and maturity date from the next payment cycle.
Change Payment Amount Change the interest rate and generate a new schedule keeping the maturity date the same as before.
Delinquency status and old bills remain as are. New schedule includes the old schedule till the rate change transaction date, and the new schedule with changed payment amount from the next payment cycle.
Rounding Method Select the Rounding Method if rounding must apply to calculations of all the amounts related to the contract, such as disbursement schedule, payment schedule, any investor transactions, and interest computations. For more information, refer to section Defining the Rounding Method.
This field indicates the method for rounding the amounts in transactions, accruals, bills, investor transactions, payoffs, and interest calculations.
If you change the rounding method for an existing product, then the values of different financial amounts of attached loan contracts start rounding but the error introduced before and after rounding enablement is not adjusted.
Bill amounts for contracts with rounding method are calculated with rounding precision and rounding error is captured for future calculations.
For more information on the rounding method and its application, refer to section Defining the Rounding Method.
Digits After Decimal Specify the Digits After Decimal if you have selected the rounding method in the Rounding Method field to define the rounding precision. The default value is 2.
Business Hours Select the Business Hours from the list of Business Hours that are created in the Business Hours setup at the org level to apply the business holidays on the product.
If Business Hours are not defined at product level, then the product assumes the default Business Hours.
Specify the information for the other sections on this page using the steps described for creating a loan contract in section Loan.
Click Save.