Enabling Calculation of Interest on Arrears

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Enabling Calculation of Interest on Arrears

Overview

You must set up the calculation of IOA at the lending product level to define the default product behavior or set it up directly at the CL contract level. The different interest rates for IOA calculation of each component, such as principal, interest, and IOA must be set up in the contract. 

Note:

It is recommended to enable IOA for new contract only, as it impacts the payment schedules that have already been created. If IOA needs to be enabled for existing contracts, please contact Cloud Lending Solutions.

Prerequisites

Before calculating interest on arrears, ensure that the following prerequisites are met:

  • The loan product is of type Flexible Amortization Based Loan.
  • The user profile has the permission to create Flexible AMZ based loan contracts. 

  • New Payment Spread is enabled** in the org parameters. 

    Note:

    For information on setting up these details, refer to section Interest on Arrears, in the CL Loan Administration Guide.

** Three payment components are provided in the New Payment Spread - IOA on Principal, IOA on Interest, IOA on IOA to specify the order of IOA payments.

Steps

To set up IOA calculation:

  1. Enable interest posting and calculation of interest on arrears:

    • At the lending product - While creating the flexible amortization based loan contract, in the New Lending Product page:

      1. Select the Is Interest Posting Transaction Enabled checkbox. 

      2. Specify the Interest Posting Frequency. You can specify any value other than Daily. This must be the same as the payment frequency.

    • At the contract level - In the Create Loan Contract page:

      1. Select the Is Interest Posting checkbox. 

      2. Specify the Interest Posting Frequency. You can specify any value other than Daily. This must be the same as the payment frequency. 

  2. In the Interest Posting Details section of the CL contract, specify the Interest Rate on Due Principal, Interest Rate on Due Interest, and Interest Rate on Due IOA.

  3. In the Account Balances section, specify the Next Interest Posting Date. This must be the same as the Payment Start Date.

  4. Continue creating the CL contract, and click Save when done.

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