EOD Schedules

How does the EOD interest accrual process impact the schedules? or What are EOD schedules?

With the Platinum patch (3.6019.33 version of Q2 Loan Servicing, 3.6001.3 version of Q2 Marketplace, 3.6003.5 version of the CL Common package) release, the FinCalc calculates interest taking into account the Accrual Type parameter introduced in this release for interest to be accrued at the end of the day in the EOD process instead of the SOD process. This means that the system calculates interest on a loan based on the Accrual Type defined on the contract so that the schedule depicts the expected dues or payments as per the number of days for which interest accrued has to be included in a cycle. These number of days are decided as per the value selected in the Accrual Type parameter.

FinCalc Changes

• The FinCalc calculator methods are enhanced to consider the accrual types.

• Depending on the Org Parameters > Daily Interest Accrual Time selected, the type of accrual is passed to the calculator. If Daily Interest Accrual Time is EOD, then the type of accrual selected is passed to the calculator. Else, nothing is passed.

How does the Accrual Type parameter impact the schedules?

The schedules generated in the EOD interest accrual loan vary depending on the value in the Accrual Type selected. The Accrual Type parameter can have one of the following values:

• Accrual To Date

• Accrual Through Date

Accrual To Date

If the Accrual Type is Accrual To Date, the dues in the schedule display the interest amount that is calculated just like in the default scenario where interest is accrued in the SOD process and interest is calculated on the due day. The interest amount posted or capitalized is equal to the amount accrued till the previous day.

Accrual Through Date

If the Accrual Type is Accrual Through Date, the dues in the schedule display the interest posted or capitalized as the amount accrued till that day.

Which APIs are modified to include the EOD schedules in the system?

REST APIs

The following two REST APIs of the Q2 Marketplace package are modified by adding two parameters to each:

• v1/loanApplications/

• v1/loanAccounts/

The two parameters added to the preceding REST APIs are:

• eodAccrualType: This parameter is used to calculate the end of the day interest and holds one of the two values: 

  • Accrual Through Date

  • Accrual To Date

• eodFeeAccrual: This parameter is used to enable EOD fee accrual. If this parameter has a true value, the fee accrual job is run as part of the end of the job process.

Global Methods

The FinCalc calculator methods are enhanced to consider the accrual types. Depending on the Org Parameters > Daily Interest Accrual Time selected, the type of accrual is passed to the calculator. If Daily Interest Accrual Time is EOD, then the type of accrual selected is passed to the calculator. Else, nothing is passed.

LoanCalculatorInput

This global constructor method of the LoanCalculatorInput global inner class is enhanced to pass the accrual type to the calculator.

The clcommon.LoanCalculator_v3.LoanCalculatorInput global inner class of the LoanCalculator_v3 global class now accepts the following new parameter to be passed to its global constructor method:

• Accrual_Type_c

This is illustrated in the following code:

financialCalculatorMap.put('Accrual_Type_c', 'Accrual Through Date' or 'Accrual To Date');//If nothing is passed then 'Accrual To Date' is considered by default.clcommon.LoanCalculator_v3.LoanCalculatorInput loanCalculatorInput = new clcommon.LoanCalculator_v3.LoanCalculatorInput(financialCalculatorMap);

If the correct value is not passed in the map of the method, then the system displays a validation message as explained in the following section table.

What are the error messages or the validations that you may encounter while using the API or UI of the EOD schedules?

The following table illustrates the various error messages or validations that you may come across while using this feature in the Q2 Loan Servicing:

What is the impact of Estimated Interest for EOD schedules on the calculation of fee accrual?

The Accrued Fee is different for EOD schedules as compared to the Accrued Fee for non-EOD schedules.

For Income Basis, the fee accrual amount is calculated as follows:

• Accrued Fee = (Total Interest Accrued (Till Today) * Fee Amount)/Estimated Interest.

The Estimated Interest considered in the preceding formula is different from the non-EOD schedules, and because of this, the fee accrual on Income Basis calculates using the EOD Estimated Interest and EOD Interest Accrued resulting in a different value of the Accrued Fee as compared to the Accrued Fee calculated for non-EOD schedules.

How does a rescheduling of a loan impact the way interest is calculated for the EOD schedules when the accrual type is Accrual Through Date?

The following table illustrates the impact of rescheduling on the interest calculation in EOD schedules when the accrual type is Accrual Through Date and Maintain Delinquency is True so that bills and IPTs are not discarded:

The following types of rescheduling are impacted in the same way:

• Bulk rescheduling such as rescheduling due to excess payment on bill date, or one day before bill date.

• FIT disbursal on bill date, or one day before bill date.

• FIT disbursal on posting date when the option to be able to the change the maturity date is enabled so as to keep the payments same by extending the terms. This can be done by disabling the Keep Same Maturity Date on FIT Disbursal flag in the Org Parameters. 
  

  Note:

  When the flag Keep Same Maturity Date on FIT Disbursal is enabled in the Custom Settings > Org Parameters, the system retains the original maturity date for FIT loans on future disbursals. By default, the maturity date gets extended on each disbursal. For example, if second disbursal is made on third month of a twelve-month loan, then the maturity date is extended by three months.

Why does the Compounding Frequency need to be enabled for schedules that are EOD enabled?

When you enable the Is Capitalization Enabled flag on the product, you are enabling the calculations for capitalization of unpaid interest for the servicing of the loan. However, these are not reflected in the schedules. To enable the compounding of interest for schedules, you need to enable the Compounding Interest flag on the product. Once this is enabled, you can select the Compounding Frequency at the contract level to match the Interest Posting Frequency of the contract. The amortization schedule generated for the contract then displays the compounded interest. This enables the interest portion on the schedules to match the end-of-day (EOD) interest postings.

Example: Impact on Number of Days for calculation in Schedules

Let us understand how FinCalc considers the number of days in the EOD schedules with the help of an example.

Let us say we have a loan with the following details:

Scenario 1: Monthly EMI Schedule and Accrual Through Date

Let us consider a scenario where the EMI is calculated monthly and the Accrual Type is Accrual Through Date. The system does the calculations for generating the EOD schedule as follows:

From the preceding table, we observe the following:

• The number of days considered for the first month in the schedule is (30 + 1). This is because since the Accrual Type is Accrual Through Date, the system accrues the interest at the end of the day in the EOD process, thus including the due date too. In the SOD process, the interest was accrued at the beginning of the day and hence it did not include the interest of the due date too.

• As the system does not include the maturity date while accruing for Accrual Through Date, the number of days considered for the last month is (actual number of days for that month - the last maturity date), which in this case for November 5, 2020, is (31 - 1) as October as 31 days and November 5 is the last date or the Maturity Date of the loan.

• The interests are calculated as per the number of days considered for each cycle of the EMI for the Accrual Through Date Accrual Type.

Scenario 2: Normal EMI, Accrual Through Date, Rate Schedule

Let us consider a scenario where the EMI is monthly, Accrual Type is Accrual Through Date, and there is a Rate Schedule added in the loan.

Let's say the First Payment Date is December 05, 2019, and the rate change also occurs on December 05, 2019:

As per the preceding scenario, we see that the days from November 05 to December 05 are considered as 31 for Accrual Through Date. So the rate applicable for 30 days is the earlier rate, which is 10%, and the rate applicable for 1 day is 20% because of the rate schedule. Similary, for January 05 too, and so on as illustrated in the following table:

From the preceding table, we observe the following:

• The number of days considered for the due date of December 5, 2019, is 31 days, where a 10% rate is applicable for 30 days and 20% for 1 day. Here, the system considers a 10% interest rate from November 6, 2019, to December 4, 2019, and a 20% interest rate for December 5, 2019, as the due date is included in interest calculations for Accrual Through Date type of accrual.

• The number of days considered for the due date of January 5, 2019, is 31 days, where a 20% rate is applicable for 30 days and 5% for 1 day. Here, the system considers a 20% interest rate from December 6, 2020, to January 4, 2020, and a 5% interest rate for January 5, 2020, as the due date is included in interest calculations for Accrual Through Date type of accrual.

• The number of days considered for the due date of February 5, 2019, is 31 days, where a 5% rate is applicable for all the 31 days as the rate schedule does not change after January 5.

• The number of days considered for the due date of November 5, 2019, is (31-1) days, where a 5% rate is applicable for the 30 days. Here, as the system does not consider the Maturity Date for the interest calculation, the days considered are one day less than the total days, which is 30.

Example: EOD Schedules when a loan has an AIC with Compounding Frequency as Weekly

Let us see this example to understand how the schedules for EOD accruals are created when the loan has an additional interest component and the Interest Posting Frequency and the Compounding Frequency are both Weekly.

Lending Product

Let us create a lending product with the following details:

Actions

On March 1, 2017, let us take the following actions:

1. Create a contract with the preceding lending product, and with Loan Amount = $10,000.

2. Approve and disburse the loan with Transaction Amount = $5,000.
   This updates the Amount Not Funded to: $10,000 - $5,000 = $5,000.

3. Check the loan every week till March 29, 2017, to validate that the total IPT amount matches the one on the schedules.

Interest Calculations on Loan and AIC

As we have defined the Interest Posting Frequency and Compounding Frequency on Loan and AIC as Weekly, the posting and capitalization of interest for loan and AIC also take place weekly as illustrated in the following table:

EOD Schedule

On April 1, 2017, the EOD schedule's interest amount is equal to the sum of all the IPT amounts of the whole month, which is 13.15+11.57+11.61+11.66+5= $52.99 as highlighted in the following schedule:

EOD Schedules

Example: Impact of Rescheduling in FIT loans

Let us say we have an FIT EOD loan with the following details:

On February 1, IPT gets generated at EOD, and let us assume that on the schedules, the expected principal balance is $4,900.

Now let us consider that a disbursal of $4,000 is made on February 1. This makes the total Loan Amount be updated to $8,900 and Interest Remaining is updated to, say, $150.

In the SOD schedules, to calculate interest for the February 15 schedule, the system normally calculates it in the following way:

Interest calculated for February 15 schedule, from February 1 to February 15 (for 14 days) = Interest Remaining + Interest on (4900 + 4000).

However, in the case of EOD loans, when disbursal is done on February 1, the Interest Posting Date, then the Interest Remaining gets added to the Interest Posted as Interest Posting job runs at the end of the day for Accrual Through Date type of accrual. Thus Interest Posted now becomes 200 + 150 =$350, and Interest Remaining becomes 0.

This means that in the case of EOD schedules, the interest calculated for February 15 schedule from February 1 to February 15 (for 14 days) = Interest on (4900 + 4000).

If the payment amount remains the same due to disabling the Keep Same Maturity Date on the FIT Disbursal flag, then interest for the February 15 bill is calculated as follows:

Interest for February 15 schedule = Interest on $4,900 from January 16 to January 31 (16 days) + interest on $4,000 from February 1 to February 14 (14 days).