Zero-Amount Loans

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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 functions of a loan contract 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:

    1. Click Setup.

    2. Click Object Manager.

    3. In the Quick Find box, search for CL Contract.

    4. Click Validation Rules.

    5. Click Loan_Amount_Check.

    6. Click Edit.

    7. Clear the Active checkbox.

    8. Click Save.

Steps

To create a zero-amount loan, perform the following steps:

  1. While creating a loan contract, specify the value of the Loan Amount as 0.

  2. 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:

  1. Create a Fee

  2. Create a Zero-Amount Loan Contract

  3. Disburse a Zero Amount

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.

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