Promotions: Discount Rates

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Promotions: Discount Rates

What are Promotions in CL Loan?

Promotions, in CL Loan, are the discount rates offered for a specific period of time.

It is a configuration added in the Oxygen release that can be enabled and then included in the loan contracts. When a promotion is included in a loan, it overrides the existing rates for a specific period of time.

Why is it introduced in CL Loan?

There are times when a lender comes up with seasonal discount offers for a product, and the borrower gets some temporary discount on the interest rate. To support such business scenarios, the operation users would need the CL Loan system to have the capability of setting up such offers on the product for a specific period. The loan contracts booked on such products would accrue daily interest on those discount rates for that period. 

With the Oxygen release of CL Loan, you can now set up a Promotion for your loan contract.

How do you set up a Promotion for a Loan Contract?

To set up a Promotion for a loan contract in CL Loan:

  1. Enable the Promotions feature in Custom Settings.

  2. Configure a Promotion in Servicing Configuration.

  3. Include the promotion while creating the lending product.

  4. Create a contract with the preceding lending product and add Promotions.

1. Enable the Promotions feature in Custom Settings

To be able to use the Promotions feature in CL Loan, you will have to enable it in the Custom Settings > Enable Loan Features.

Note:

For more information on enabling Promotions, see the Enable Loan Features section in the CL Loan Administration Guide.

2. Configure a Promotion in Servicing Configuration

For a product to include a promotion, it needs to have the Promotion configured first in the Servicing Configuration of CL Loan. You can configure multiple Promotions in CL Loan. Each configured promotion overrides the existing rates of the loan for the specified period.

Once a promotion is configured, it can then be added while creating a lending product. The promotion is then applied to the loan contract corresponding to this lending product.

Note:

For more information on including a promotion in a lending product, see Include the Promotion While Creating the Lending Product.

Prerequisites

Before configuring Promotions in CL Loan, ensure that the following prerequisite is met:

  • The Promotions flag in Custom Settings > Enable Loan Features is enabled as explained in the preceding step.

Steps

To configure Promotions:

  1. Log in to your Salesforce account.

  2. Click  (App Launcher).

  3. Click Servicing Configuration.

  4. In the Product > Product Management... section, click Promotion.

    Servicing Configuration

  5. Click Define New Promotions Rate.

  6. Provide the details as described in the following table, and then click Save:

    Note:

    As an example, you can refer to the New Promotions image.

    Field Name Action
    Promotion Name Specify a name of the promotion that you want to configure in the org.
    Discount Rate Specify the rate that you want to charge for this promotion. This rate overrides the existing rate for the time period specified in the following date fields.
    Amount Ignore this field as it is redundant and not used anywhere in the CL Loan product.
    Sequence

    Ignore this field as it is redundant and not used anywhere in the CL Loan product.

    Note:

    The Sequence displayed in the Promotions schedule is a different field and does not take its value from this field.
    Start Date Specify the date from which the discount rate must be applicable.
    End Date Specify the date till which the discount rate must be applicable.

    Description

    		 Specify a description for the configured Promotion.

  7. New Promotions

  8. This saves the Promotion and is applicable from the Start Date to the End Date specified in the product, and thus the contract, that it is included in.

3. Include the Promotion While Creating the Lending Product

Prerequisites

Before creating a lending product with a Promotion included in it, ensure that the following prerequisite is met:

  • The Promotions flag in Custom Settings > Enable Loan Features is enabled as explained in the preceding step 1.

  • Promotions is configured in Servicing Configuration as explained in the preceding step 2.

Steps

To include a Promotion in a lending product:

  1. While creating a lending product, provide the following necessary details:

    Note:

    As an example, you can refer to the Lending Product image.

    Field Name Action
    Promotions Select the Promotion Name configured in the Servicing Configuration in the preceding step.
    Interest Type

    Select Floating.

    This ensures that the interest rate in a loan can change. If it is Fixed, the interest rate would not change over the life of the loan.
    Floating Rate Revision Frequeny Select the floating rate revision frequency.

    Lending Product

  2. Complete creating the lending product as explained in the Create a Simple Lending Product section of the CL Loan User Guide for Simple Loans.

4. Create a Contract with the preceding Lending Product

A promotion can be applied to a contract. When it is applied to a contract, the discount rates provided as part of the promotion affect the rates given on the contract from the promotion start date to the end date. Multiple Promotions can be associated with a contract.

While creating a contract, add a Promotion as illustrated in the following image:

Promotions Schedule

Note:

You can add more than one Promotions.

How does the inclusion of promotion affect the Rate Schedule?

When a loan has a promotion defined in it, the Rate Schedule is a combination of the flexible Interest Rate Schedule and the Promotion Schedule, and the discount rates are applied to the interest rates.

To understand this better, see Example: The Effective Rate Schedule.

How to use the API to generate Rate Schedule with Promotion?

With the Oxygen release, a global API named generateRateSchedule is introduced in CL Common that accepts the flexible Interest Rate Schedule and the Promotion object list to provide the final Rate Schedule.

Note:

For more information on this API, see the generateRateSchedule section of the RateScheduleGenerator Class section of the Global Methods guide.

How to change the Promotion schedule after the Contract is created?

You can change the schedule of the Promotion after the contract is created.

To change the promotion schedule:

  1. Log in to your Salesforce account.

  2. Click (App Launcher).

  3. In the Search apps and items... box, search for CL Loan and then click it.

  4. Go to Loan Quick Menu > Loan Actions > Promotion Change.

    Loan Quick Menu

  5. In the Promotion Change window, perform the actions as specified in the following table:

    To. Click
    Change the details of a promotion

     (Edit)
    Delete a promotion from the Promotion Schedule

     (Remove)
    Add a new promotion to the Promotion Schedule Add
    Clear the complete Promotion Schedule Clear
    Reset the Promotion Schedule to the original schedule Reset

  6. Click Save.

More on Promotions

  • Like rate schedules, promotions are also applied on the contract while calculating the current interest rate.

  • The applicable rate schedule is determined by the rate and the promotion schedules defined.

  • The contract inherits the promotion defined in the product, and you can modify it while creating the contract. 

  • For the defined promotions, both the start date and end date are included in the time period in which the discount rate is applied.

  • You can apply multiple promotions to a contract.

  • If two promotions fall on the same date, then the discount rate works cumulatively.

    Note:

    For more information on cumulative discount rate calculations, see Example: Cumulative Discount Rate Calculations.

Example: Cumulative Discount Rate Calculations

Let us say we have the following Promotion Rate Schedule:

Sequence Name Discount Rate Start Date End Date
1 Promotion 1 10% January 1 January 30
2 Promotion 2 15% January 15 February 5
3 Promotion 3 25% January 25 January 28

Then the resultant applicable discount rate is:

Start Date End Date Cumulative Discount Rate Applicable
January 1 January 14 10%
January 15 January 24 10% + 15% = 25%
January 25 January 28 10% + 15% + 25% = 50%
January 29 January  30 15% +10% = 25%
January  31 February 5 15%

Example: The Effective Rate Schedule

Let us understand how the interest rate in the effective Rate Schedule is calculated with the help of an example.

Let's say the floating rate schedule on the contract is as follows:

Sequence Floating Rate Index Index Rate Margin Rate Start Date
1 Floating Rate 1 5 18 January 1, 2017
2 Floating Rate 2 7 20 June 25, 2017
3 Floating Rate 3 5 8 July 25, 2017

And the promotion schedule on the contract is:

Sequence Promotion Start Date End Date Discount Rate
1 Promotion 1 January 3, 2017 January 10, 2017
2 Promotion 2 June 28, 2017 June 30, 2017 10%
3 Promotion 3 August 10, 2017 August 25, 2017 5%

Then the resultant Rate Schedule is:

Sequence Start Date Floating Rate Index Promotion Applied Index Rate Margin Rate Discount Rate Interest Rate
1 January 1, 2017 Floating Rate 1 NA 5% 18% NA 23%
2 January 11, 2017 Floating Rate 1 Promotion 2 5% 18% 10% 13%
3 June 25, 2017 Floating Rate 2 NA 7% 20% NA 27%
4 June 28, 2017 Floating Rate 2 Promotion 2 7% 20% 10% 17%
5 July 1, 2017 Floating Rate 2 NA 7% 20% NA 27%
6 July 25, 2017 Floating Rate 3 NA 5% 8% NA 13%
7 August 10, 2017 Floating Rate 3 Promotion 3 5% 8% 5% 8%
8 August 26, 2017 Floating Rate 3 NA 5% 8% NA 13%

Example: A Contract with Promotions

Let us understand how a contract's rate schedules are affected when promotions are added to it with the help of an example.

Create a Floating Rate Index

Let's first create a Floating Rate Index in the Servicing Configuration with the following details:

FRI1 in Servicing Configuration

Configure Promotions in Serviving Configuration

Let's then configure Promotions in the Servicing Configuration with the following details:

Create a Lending Product

Let's say we create a Lending Product with the following details:

Field Name Value
Loan Product Name Promotions Product 2
Promotions P1
Interest Type Floating
Floating Rate Index FRI1
Margin Rate 0%

Create a Contract and add an Interest Rate Schedule and a Promotion Schedule

While creating a Contract from the preceding product, let's add an Interest Rate Schedule and a Promotions schedule to it:

Contract Field Name

 Value
Product Promotions Product 2
Application Date 2/1/2016

Interest Rate Schedule

Promotions Schedule

The Created Contract

Once the contract is created, values in the contract are updated as follows:

Contract Details as on 2/1/2016

We observe that:

Contract Field Remark
Index Rate = 12% As per the Floating Rate Index in the Interest Rate Schedule defined and the FRI1 for the Start Date = 2/1/2016
Margin Rate = 10% As per the Floating Rate Index in the Interest Rate Schedule defined and the FRI1 for the Start Date = 2/1/2016
Interest Rate = 17%

As per the calculation: Interest Rate = Index Rate + Margin Rate - Discount Rate = 12% + 10% - 5% = 17%.

Discount Rate takes its value from the Promotions Schedule for the Start Date = 2/1/2016.

The Effective Interest Rate Schedule

The effective interest rate schedule is generated with values as displayed:

Effective Interest Rate Schedule

From the above images, we observe the following:

Start Date Floating Rate Index Applicable Index Rate Applicable Margin Rate Applicable Promotion Applied Discount Rate Applicable Effective Interest Rate
2/1/2016 FRI1 12% 10% P1 5% 12% + 10% - 5% = 17%
3/1/2016 FRI1 12% 10% NA NA 12% + 10% = 22%
8/1/2016 FRI1 12% 10% P2 4% 12% + 10% - 4% = 18%
8/31/2016 FRI1 12% 10% NA NA 12% + 10% = 22%
9/1/2016 FR1 11% 8% P3 6% 11% + 8% - 6% = 13%
10/1/2016 FRI 11% 8% NA NA 11% + 8% = 19%

We observe that:

  • The Start Dates follow the schedule defined in the Interest Rate Schedule and Promotions schedule created while creating the contract. It changes as per the change in the start dates of either the Interest Rate Schedule or Promotions schedule. For example, when the Start Date is 8/1/2016 in the preceding table, the Index Rate Applicable is 12% as per the Interest Rate Schedule defined for Start Date 1/2/2016.

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