Refinance a Loan
Refinancing a loan is creating a new loan contract by paying off one or more existing loans. It is a consolidation of all of borrowers existing loans. The outstanding amount of an existing active CL Contract of a borrower is carried forward to a new contract and the original CL Contract is closed. Refinancing a loan, therefore, does not indicate that the debt will be cleared, it simply means that the existing loan can be restructured in terms of interest rates and different loan terms.
Generally, in a refinance contract some additional amount is also disbursed to the borrower. In such a case, the total loan amount of the new CL contract is the sum of the outstanding amount and the additional loan amount disbursed by the existing CL Contract.
Once the loan is refinanced, the refinanced amount is also displayed in the Loan Details section of the loan contract.
A lender can refinance a loan that is in Active Good or Bad Standing status. Refinancing is, in fact, the only way where a loan in Active Bad Standing status is changed to Active Good Standing without any borrower repayment. In this case, the existing loan in Bad Standing is closed with status as 'Closed-Refinanced'. Subsequently, the new loan contract is created in Active-Good Standing status for the outstanding amount.
Refinance differs from the usual restructuring of the dues where borrower must clear the delinquent dues on the same loan to restore the status to Active Good Standing before changing the loan terms.
Prerequisites
The following are the prerequisites to refinancing a CL contract:
The CL contract is in Active-Good Standing or Active-Bad Standing status.
The CL contract to be refinanced as a new contract is for the same contact.
Steps
Perform the following steps to refinance a CL Contract:
Log in to your Salesforce account.
Click CL Contracts.
Click New.
Select the Loan as Record Type of New Record.
Click Continue.
Click Contact or Account as per your requirement.
Select the Contact Name.
Select Refinance as Contract Type.
Specify the Purpose of the loan.
Specify the Lending Product type for the loan.
Specify the Additional Loan Amount.
This amount is added to the refinanced amount to obtain the total loan amount for the refinanced CL Contract.
Specify the Interest Rate.
Select the required Interest Calculation Method.
Select the required Time Counting Method.
Specify the Interest Only Period.
Specify the Balloon Payment.
Click Add under the section Add Contracts for Refinancing.
Click on the look up icon to select the contract for refinancing.
Select the required Contract.
On adding the selected Contract, you can see that the related Contact, Expected Refinance Amount, and Current Loan Status is displayed.
Click Validate.
Similarly, you can add multiple CL Contracts for the purpose of refinancing by clicking Add as shown in the image above.
Validate is used to validate the CL Contracts selected for the purpose of refinancing.
Clear is used to clear the records selected during Step 16. On clicking Clear, you can enter other CL Contract Parameters and save this record.
Specify the Expected Disbursal Date.
Specify the Payment Frequency.
Specify the Term.
Specify the Payment Start Date.
Specify the Late Charge Grace Days.
Specify the Pre-Bill Days.
Specify the Delinquency Grace days.
Specify thePay off Tolerance Amount .
Click Save.
On clicking Save, the details page is updated with refinance details.
Please note, Additional Loan Amount + Sum of Total Refinance Amount (Expected) = Loan Amount
For example,
The loan amount including the current due = 7660
Refinanced Additional Loan Amount = 10,000
Therefore,
| Additional Loan Amount | 10,000 |
| Sum of Total Refinance Amount (Expected) | 7,660 |
| Loan Amount | 17,660 |
Viewing the refinance transactions
For a refinanced contract, Refinance transactions are created. This will show all the CL Contracts selected for refinancing. Initially, the actual refinance amount for the refinance transaction will be zero as you have not settled the refinance transaction.
Prerequisites
The following are the prerequisites to viewing the Refinance Transaction:
CL Contract is refinanced.
Steps
Perform the following steps to view the Refinance Transaction:
Scroll down the newly created CL Contract.
Click Refinance Transactions.
On clicking Refinance Transactions, the refinance transaction is displayed as zero.
Settling the refinance transaction
Settling the refinance Transaction indicates paying off the loan such that you can close the loan. Paying off a loan refers to repayment of loan in a single payment. Our lending system calculates the total amount due as of the current system date. This includes Principal, Interest, Fees and Penalty, if any.
Prerequisites
The following is the prerequisite to settling the refinance transaction:
- CL Contract is refinanced.
Steps
Perform the following steps to settle the refinance Transaction:
Login to Salesforce account.
Select the required CL Contract ID.
Scroll down on the details page of the contract.
Click Refinance Transactions tab.
Click Refinance Transaction ID.
Click Settle Transaction.
On clicking Settle Transaction, you see a message prompt.
Click OK.
An LPT of the Payment Type 'Refinance' is created, and the transaction is cleared.
On settling the Refinance Transaction, the status of the CL Contract (Hint: Click Loan Account under Loan Refinance Transaction Detail to find the CL Contract) as shown in the image above is Closed - Refinanced. You can also see that in the CL Contract, Refinanced is selected, indicating that the CL Contract has been refinanced successfully.
The Actual Refinance Amount may differ from the expected refinance amount calculated at the time of creating a Refinance Transaction. The Refinance Transaction on the new CL Contract is marked as Settled and the Actual Refinance Amount is updated with the Refinance Pay Off amount.
Ensure that all the above steps are completed when the new CL Contract has the status, Partial Application.
To submit the new Refinance CL Contract for approval, all the refinance transactions must be settled, otherwise the lending system will not allow you to submit the CL Contract for approval.
For more information on approving a CL Contract, refer to section Approving a Loan in chapter Contract Management.
Now, for the approved Refinance CL Contract, you must create a disbursal transaction to disburse the Additional Loan Amount.
Prerequisites
The following are the prerequisites to disbursing the additional loan amount:
CL Contract is refinanced.
Steps
Perform the following steps to disburse the Additional Loan Amount:
Login to Salesforce account.
Click CL Contracts.
Click on the required CL Contract ID.
Click Transactions.
Click New Loan Disbursal Transaction.
You see that the total loan amount is split into three parts namely:
Financed Amount (the amount to be disbursed to the borrower)
Total Pre-Paid Fees, if any and
Total Refinanced Amount
Also, the Pre-Paid Fee and Refinance distribution lines cannot be edited.
You cannot remove the system generated distributions.
You can add multiple distribution lines for Disbursement Type Distribution to disburse the Financed Amount (amount to be disbursed) to different Bank Accounts.
Select the required Payment Mode.
Click Save.
On clicking Save, you can see that the refinanced CL Contract will now have the status, Active - Good Standing and this is a refinanced CL Contract, and can now be processed as a regular CL Contract.
Field reference
| Field Name | Description |
|---|---|
| Financed Amount | The financed amount to be disbursed to the borrower. |
| Pre-Paid Fees | Pre-Paid Fees are fees which is charged to the customer before disbursement. This fee amount is reduced from the disbursal amount and is used only for amortization. |
| Refinanced Amount | The refinanced amount required by the borrower. |