Loan pricing
Loan pricing is the process of determining the interest rate for lending a loan, typically as an interest spread (margin) over the base rate that a borrower must pay in addition to the borrowed amount. Loan pricing means determining the interest rate for granting loans to creditors, be it individuals or business firms. It is one of the most important, however difficult tasks in lending funds to business firms & other customers. Because it is always very difficult to exactly know what the actual loan risk a particular loan application is. Generally, the lender wants to charge a high enough rate to make sure that the loan will be profitable as well as will cover enough compensation against the default risk. On the other hand, loan prices must be set low enough that helps the customers to find it easy for successful repayment of loans.
Components of loan pricing
A loan price may be separated into two components: the interest rate and the fees.
Fees as component of loan pricing
As fees are the compensation that a lender earns for executing and servicing a loan application, so it is considered as a component of loan pricing.
Different types of interest supported by Q2 Origination
Fixed- Loans have a single, constant interest rate for the entire loan duration. This rate cannot be changed during loan servicing.
Floating- Loans have one or more interest rates. The Rate Schedule is controlled by the global index rate setup in the selected loan Index. The rate schedule is based on installment numbers. An installment has only one interest rate.
Rate Schedule-
Different types of fees supported by Q2 Origination
Fees can be a one-time fee or a recurring fee.
Generate pricing offers for loan applications
Pricing offers can be generated in one of the following ways:
Rate Cards- Q2 Origination provides an inbuilt calculator to price the loan application using a rate card.
Manual Pricing- Q2 Origination provides the flexibility to price a loan manually. The loan repayment amount is automatically calculated using a standard payment calculator based on the loan amount, interest rate, and term entered when the application was created.
Generate pricing using rate cards for a loan application
To generate pricing using rate cards, the pricing method should be selected as Rate Card while creating the lending product. For more information on how to generate pricing rate cards, see Q2 Origination Administration Guide > Generate Loan Pricing Using Rate Cards.
View pricing offers generated for a loan application
Generate pricing manually for a loan application
To generate pricing manually, the pricing method should be selected as Manual while creating the lending product. For more information on how to generate pricing manually, see Generate Loan Pricing Manually.
Configure fees for loan applications
You must create fees before you can add them to a loan application. You can configure commonly used fees through Fee Definitions and associate those fees with a lending product. For more information on how to define fees and associate those to a lending product, see Q2 Origination Administration Guide > Loan Fees Setup.
View fees associated with a loan application
You can view all fees associated with a loan application in the Q2 Origination application dashboard > Fee. You can view the repayment schedule for the periodic fees on the Payment Schedule page. For more information on how to manage fees, see Manage Application Fees.