Variable Rate Based Repayment Schedule
Overview
In the August 2024 release, Q2 Loan Servicing has been enhanced to allow you to generate different EMI amounts in the amortization schedule based on the different interest rates defined in the rate schedule of the contract. This enhancement applies only to Simple Loans and flexible Amortized based loan product types.
Compute EMI amounts based on different rate schedules
If you want the system to generate different EMI amounts in the amortization schedule as per the different rate schedules defined in the contract, then you must select the Variable Rate Based Repayment Schedule checkbox while creating the contract. To do this, perform the steps as follows.
For more information on Rate Schedule Setup and flexible Interest Rate Schedules, go to:
Prerequisites
The loan product or contract must have Interest Rate Schedules.
-
The loan product must have the following flag set to true:
Flexible Rate
Steps
-
While creating the contract, select the following flag in the Additional Parameters section:
Variable Rate Based Repayment Schedule
The system will display the rate schedules in the Interest Rate Schedule section if they were added in the Rate Schedule Setup for the corresponding loan product. You can add more rate schedules in the Interest Rate Schedule section.
If they were not added, then you can add them as explained in the Flexible Interest Rate Schedules section of this guide.
This activates the contract, and you can see the effects of the interest rate schedules on the amortization schedules.
Example
Let us say a contract with the following parameters is created, approved, and disbursed on January 1, 2012:
| Field | Values |
|---|---|
| Loan Amount | 10,000 |
| Interest Type | Fixed |
| Terms | 30 |
| Contract Date | January 1, 2012 |
| First Payment Date | February 1, 2012 |
| Maturity Date | July 1, 2014 |
| Flexible Rate | true |
| Variable Rate Based Repayment Schedule | true |
| Interest Rate Schedule | |
| Schedule 1: | |
| Fixed Interest Rate | 10% |
| Start Date | January 1, 2012 |
| Schedule 2: | |
| Fixed Interest Rate | 20% |
| Start Date | May 1, 2012 |
Following is an image of adding a rate schedule in the Interest Rate Schedule section while creating a contract:
After saving the contract, the rate schedules are saved in the Rate Schedule section of the Schedules tab as follows:
Repayment Schedule is generated as follows:
As observed from the preceding image, the schedules from June 1, 2012, have a different due amount based on the change in rate from May 1, 2012, in the Interest Rate Schedule.
Thus, the Due Amount in the schedule is calculated based on the 10% interest rate from January 1, 2012 till May 1, 2012, whereas the Due Amount calculated from the May 1, 2012, till the maturity date is based on the 20% interest rate as defined in the Interest Rate Schedule.