Flexible Interest Rate Schedules

Overview

The Interest Rate Schedule is inherited from the product to the contracts associated with it, and can be modified for a contract.

You can add the Interest Rate Schedule in the following two ways:

• Using the Rate Schedule Setup in the Servicing Configuration for both fixed and floating types of interest rates. Once set up, these rate schedules will automatically display on the lending product and contract.

  Note: If the interest type is fixed, then Flexible Rate flag must be set to true for that product to be able to add the fixed type interest rate schedule in the Rate Schedule Setup.

• Add the rate schedule while creating the contract if the interest type is floating.

  If the interest type of the product is fixed, then you must set the Flexible Rate flag to true on the lending product to add the fixed rate schedule while creating the contract. If you set this flag to false, you will not be able to add any more interest rate schedules on the contract if the interest type for this contract is fixed.

When and how are the flexible interest rates applied?

The rate schedule that you specify takes effect after you disburse the loan.

Upon disbursal, the following fields are updated:

• Current Interest Rate
• Next Rate Change Date 
• Floating Rate Revision Date

Subsequently, the following batch jobs that run as part of SOD jobs, update these fields. Both jobs run independent of the other.  

• The FloatingRateInterestRevisionJob batch job looks for the index rate entry in the rate schedule. Based on the most current rate schedule entry having a floating rate index, it fetches the most current rate details from the Floating Rate Index object, and updates the Current Interest Rate and the Floating Rate Revision Date to the next payment date.  

• The ChangeInterestRateJob batch job refers to the fixed rate entries tin the rate schedule to update the Current Interest Rate on the contract and the Next Rate Change Date. 

Example

For example, if the Floating Rate Index ABC is defined as follows:

and, you create the following rate schedule for a monthly loan having disbursal date as Jan 1, 2017 and interest rate as 10:

Then, the effective interest rate is calculated on each floating rate revision date (which is equal to the payment date) as follows:

Create flexible and floating rate schedules

Perform the following steps to create flexible and floating rate schedules for the loan contract:

1. While creating a loan contract, if the interest type is floating, then you can proceed with the next step 2.

   Whereas, if the interest type is fixed, then select the Flexible Rate checkbox and then proceed with the next step 2.

   For more information on creating a loan contract, refer to Create a Simple Loan contract.

2. In the Interest Rate Schedule section, click Add.

3. To specify a flexible interest rate schedule, 

   1. Specify the Interest Rate.

      Note:

      If you specify interest rate as zero then the borrower is not charged for the period. But minimum interest rate should be zero for the contract.

   2. Specify the Start Date as the loan disbursal date.

   3. Click Add to add another row to the schedule.

      Note:

      The Start Date for the first row of the rate schedule must be the same as the disbursal date of the loan.

4. To specify a floating interest rate schedule:

   1. Select the Floating Rate Index. The floating rate index selected while creating the loan product is displayed by default.

   2. Specify the Margin Rate that is applied over the interest rate derived from the floating rate index to compute the final interest rate. This can be a positive or negative value. For example, -3. 

   3. Specify the Start Date from which the rate schedule is effective. Starting from this date, the rate of interest is changed as per the entries in the selected floating rate index.

5. Repeat step 2 and 3 as required. The pattern of Flexible+floating+floating...., is supported in the system.

6. Click Save.

   You can see the interest rate details in the Rate Schedule tab. If you have selected a Floating Rate Revision Frequency, then the interest schedules are created accordingly.

Can you add a Flexible Repayment Plan to a contract that has Variable Rate Based Repayment Schedule flag set to true?

Currently, the system does not allow you to add a Flexible Repayment Plan that has Variable Rates based Repayment Schedule flag set to true.

If you try to add and then save the contract, the system displays the following error message:

"Error: You cannot use Repayment Plan when Variable Rate Based Repayment Schedule checkbox is selected!"