Functionality
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F - late fee.
Initial Payment Schedule
Let us consider a general case of restructuring an overdue loan. Assume there is a loan in the amount A that has been issued for NP months with the interest rate IR, administration fee, grace period and other credit product parameters stipulated in the agreement. As a result, the following payment schedule is generated as of the loan disbursement date:
| Installment Number | Principal | Interest | Past Due Interest | Administration Fee | Late Fee | Total |
|---|---|---|---|---|---|---|
| 1 | P1 | I1 | 0.00 | AF1 | 0.00 | T1 |
| ... | ... | ... | ... | ... | ... | ... |
| i | Pi | Ii | 0.00 | AFi | 0.00 | Ti |
| ... | ... | ... | ... | ... | ... | ... |
| NP | PNP | INP | 0.00 | AFNP | 0.00 | TNP |
| Total | А | I | 0.00 | AF | 0.00 | T |
...
| Installment Number | Principal | Interest | Past Due Interest | Administration Fee | Late Fee | Total |
|---|---|---|---|---|---|---|
| 1 | 0.00 (P1) | 0.00 (I1) | 0.00 | 0.00 (AF1) | 0.00 | 0.00 (T1) |
| ... | ... | ... | ... | ... | ... | ... |
| K | 0.00 (PK) | 0.00 (IK) | 0.00 | 0.00 (AFK) | 0.00 | 0.00 (TK) |
| K+1 | PK+1 | IK+1 | PDIK+1 | AFK+1 | FK+1 | TK+1 |
| ... | ... | ... | ... | ... | ... | ... |
| K+M | PK+M | IK+M | PDIK+M | AFK+M | FK+M | TK+M |
| K+M+1 | PK+M+1 | IK+M+1 | 0.00 | AFK+M+1 | 0.00 | TK+M+1 |
| ... | ... | ... | ... | ... | ... | ... |
| NP | PNP | INP | 0.00 | AFNP | 0.00 | TNP |
Restructuring Procedure
Having K repaid and M overdue installments, the borrower requests the bank to restructure the debt on a day between due dates of the К+M-th and К+M+1- th installments. The bank consents to restructure the debt and performs restructuring in the following three steps:
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Note: the examples provided may contain deviations in the amount of 1-2 cents in the outstanding balance and resulting values. The examples illustrated below are aimed to demonstrate the logic of restructuring the payment schedule computed according to the classic method.
Example 1
The example demonstrates the restructuring of the loan taken out in the amount of 12 000 USD for 5 months with the monthly interest of 1.5% and monthly late payment interest of 3%. LGD = 7 days, the single fee for any overdue installment is 5 USD that is charged on the eighth day of the overdue payment, i.e. on the next day after late grace days expire. When the early payment is made, installments are not recalculated.
Initial payment schedule
The initial payment schedule calculated by formulas (1)- (4) in the article “Classic" looks as follows:
| Installment Number | Principal | Interest | Late Fee | Total |
|---|---|---|---|---|
| June 1 | 2400.00 | 180.00 | 0.00 | 2580.00 |
| July 1 | 2400.00 | 144.00 | 0.00 | 2544.00 |
| August 1 | 2400.00 | 108.00 | 0.00 | 2508.00 |
| September 1 | 2400.00 | 72.00 | 0.00 | 2472.00 |
| October 1 | 2400.00 | 36.00 | 0.00 | 2436.00 |
| Total | 12000.00 | 540.00 | 0.00 | 12540.00 |
Repayment of the first installment
The borrower makes payment in the amount of 2580 USD that covers the first installment. The updated payment schedule looks as follows:
| Installment Number | Principal | Interest | Late Fee | Total |
|---|---|---|---|---|
| June 1 | 0.00 (2400.00) | 0.00 (180.00) | 0.00 | 0.00 (2580.00) |
| July 1 | 2400.00 | 144.00 | 0.00 | 2544.00 |
| August 1 | 2400.00 | 108.00 | 0.00 | 2508.00 |
| September 1 | 2400.00 | 72.00 | 0.00 | 2472.00 |
| October 1 | 2400.00 | 36.00 | 0.00 | 2436.00 |
| Total | 9600.00 | 360.00 | 0.00 | 9960.00 |
The second installment is overdue
Then the borrower fails to make payment within 1 month and 8 days, i.e. 8 overdue days are available. In this case, the past due interest is charged for overdue days. Besides, the late fee (F = 5 USD) is charged for the overdue installment. The past due interest is charged on the outstanding balance according to formula (6) described in the article “Interests and fees charged for overdue payments":
As of July 9, the updated payment schedule looks as follows:
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| Installment Number | Principal | Interest | Late Fee | Past Due Interest | Total |
|---|---|---|---|---|---|
| August 9 | 985.67 | 147.85 | 0.00 | 0.00 | 1133.52 |
| September 9 | 985.67 | 133.06 | 0.00 | 0.00 | 1118.73 |
| October 9 | 985.67 | 118.28 | 0.00 | 0.00 | 1103.95 |
| November 9 | 985.67 | 103.49 | 0.00 | 0.00 | 1089.16 |
| December 9 | 985.67 | 88.71 | 0.00 | 0.00 | 1074.38 |
| January 9 | 985.67 | 73.92 | 0.00 | 0.00 | 1059.59 |
| February 9 | 985.67 | 59.14 | 0.00 | 0.00 | 1044.81 |
| March 9 | 985.67 | 44.35 | 0.00 | 0.00 | 1030.02 |
| April 9 | 985.67 | 29.57 | 0.00 | 0.00 | 1015.24 |
| May 9 | 985.63 | 14.78 | 0.00 | 0.00 | 1000.41 |
| Total | 9856.66 | 813.15 | 0.00 | 0.00 | 10669.81 |
Example 2
The current example describes the restructuring of the payment schedule in case several installments are overdue.
In the example, the loan was taken out on April 1 in the amount of 10 000 USD for 4 months, with the interest rate of 18% per annum (1.5% per month) and the late payment interest of 36 % (3% per month). LGD = 7 days, a single fee for any overdue installment equals 5 USD and is charged on the first day of the overdue payment.
Initial payment schedule
The initial payment schedule calculated by formulas (1)- (4) in the article “Classic" looks as follows:
| Installment Number | Principal | Interest | Late Fee | Total |
|---|---|---|---|---|
| May 1 | 2500.00 | 150.00 | 0.00 | 2650.00 |
| June 1 | 2500.00 | 112.50 | 0.00 | 2612.50 |
| July 1 | 2500.00 | 75.00 | 0.00 | 2575.00 |
| August 1 | 2500.00 | 37.50 | 0.00 | 2537.50 |
| Total | 10000.00 | 375.00 | 0.00 | 10375.00 |
Overdue payments
Then, 130 days have expired since the loan was issued and the borrower does not make payment during this whole period. Consequently, the overdue period is 100 days. Therefore, according to the method of charging the interest on the outstanding balance (refer to paragraph 1.1 in the article “Interests and fees charged for overdue payments"), as of August 9, the past due interest in the following amount is charged on the first overdue installment:
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| Installment Number | Principal | Interest | Late Fee | Past Due Interest | Total |
|---|---|---|---|---|---|
| May 1 | 2500.00 | 150.00 | 5.00 | 322.11 (0.00) | 2977.11 (2650.00) |
| June 1 | 2500.00 | 112.50 | 5.00 | 321.38 (0.00) | 2938.88 (2612.50) |
| July 1 | 2500.00 | 75.00 | 5.00 | 342.39 (0.00) | 2922.39 (2575.00) |
| August 1 | 2500.00 | 37.50 | 5.00 | 90.11 (0.00) | 2632.61 (2537.50) |
| Total | 10000.00 | 375.00 | 20.00 | 1075.99 | 11470.99 |
Restructuring
Then, on August 9, the Collector restructures the loan and the new loan in the amount equal to the outstanding balance is issued. The new loan is issued for 12 months. All other loan terms remain unchanged.
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Note: the examples provided may contain deviations in the amount of 1-2 cents in the outstanding balance and resulting values. The examples illustrated below are aimed to demonstrate the logic of restructuring the payment schedule computed according to the annuity method.
Example 1
The example demonstrates the restructuring of a loan taken out in the amount of 12 000 USD for 5 months, with the monthly interest of 1.5% and monthly late payment interest of 3%. Late grace days (LGD) equal 7 days, the single fee for any overdue installment is 5 USD that is charged on the eighth day of the overdue payment, i.e. on the next day after late grace days expire. When the early payment is made, installments are not recalculated.
Initial payment schedule
The initial payment schedule calculated by formulas (1)- (4) in the article “Annuity” looks as follows:
| Installment Number | Principal | Interest | Late Fee | Total |
|---|---|---|---|---|
| June 1 | 2329.07 | 180.00 | 0.00 | 2509.07 |
| July 1 | 2364.01 | 145.06 | 0.00 | 2509.07 |
| August 1 | 2399.47 | 109.60 | 0.00 | 2509.07 |
| September 1 | 2435.46 | 73.61 | 0.00 | 2509.07 |
| October 1 | 2471.99 | 37.08 | 0.00 | 2509.07 |
| Total | 12000.00 | 545.35 | 0.00 | 12545.35 |
Repayment of the first installment
The borrower makes payment in the amount of 2509.07 USD that covers the first installment. The updated payment schedule looks as follows:
| Installment Number | Principal | Interest | Late Fee | Total |
|---|---|---|---|---|
| June 1 | 0.00 (2329.07) | 0.00 (180.00) | 0.00 | 0.00 (2509.07) |
| July 1 | 2364.01 | 145.06 | 0.00 | 2509.07 |
| August 1 | 2399.47 | 109.60 | 0.00 | 2509.07 |
| September 1 | 2435.46 | 73.61 | 0.00 | 2509.07 |
| October 1 | 2471.99 | 37.08 | 0.00 | 2509.07 |
| Total | 9670.93 | 365.35 | 0.00 | 10036.28 |
The second installment is overdue
Then the borrower fails to make payment within 1 month and 8 days, i.e. 8 overdue days are available. In this case, the past due interest is charged for overdue days. Besides, the late fee (F = 5 USD) is charged for the overdue installment. The past due interest is charged according to formula (6) described in the article “Charges for overdue payment"
As of July 9, the updated payment schedule looks as follows:
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| Installment Number | Principal | Interest | Late Fee | Past Due Interest | Total |
|---|---|---|---|---|---|
| August 9 | 927.68 | 148.93 | 0.00 | 0.00 | 1076.61 |
| September 9 | 941.60 | 135.02 | 0.00 | 0.00 | 1076.61 |
| October 9 | 955.72 | 120.89 | 0.00 | 0.00 | 1076.61 |
| November 9 | 970.06 | 106.56 | 0.00 | 0.00 | 1076.61 |
| December 9 | 984.61 | 92.01 | 0.00 | 0.00 | 1076.61 |
| January 9 | 999.38 | 77.24 | 0.00 | 0.00 | 1076.61 |
| February 9 | 1014.37 | 62.25 | 0.00 | 0.00 | 1076.61 |
| March 9 | 1029.58 | 47.03 | 0.00 | 0.00 | 1076.61 |
| April 9 | 1045.03 | 31.59 | 0.00 | 0.00 | 1076.61 |
| May 9 | 1060.70 | 15.91 | 0.00 | 0.00 | 1076.61 |
| Total | 9928.74 | 837.41 | 0.00 | 0.00 | 10766.15 |
Example 2
The current example describes the restructuring of the payment schedule in case several installments are overdue.
In the example, the loan was taken out on April 1 in the amount of 10 000 USD for 4 months, with the interest rate of 18% per annum (1.5% per month) and the late payment interest of 36 % (3% per month). LGD = 7 days, a single fee for any overdue installment equals 5 USD and is charged on the first day of the overdue payment.
Initial payment schedule
The initial payment schedule calculated by formulas (1)- (4) in the article "Annuity" looks as follows:
| Installment Number | Principal | Interest | Late Fee | Total |
|---|---|---|---|---|
| May 1 | 2444.45 | 150.00 | 0.00 | 2594.45 |
| June 1 | 2481.11 | 113.33 | 0.00 | 2594.45 |
| July 1 | 2518.33 | 76.12 | 0.00 | 2594.45 |
| August 1 | 2556.11 | 38.34 | 0.00 | 2594.45 |
| Total | 10000.00 | 377.79 | 0.00 | 10377.79 |
Overdue payments
Then, 130 days have expired since the loan was issued and the borrower does not make payment during this whole period. Consequently, the overdue period is 100 days. Therefore, according to the method of charging the interest on the outstanding balance (refer to paragraph 1.1 in the article "Interests and fees charged for overdue payments"), as of August 9, the following past due interest is charged on the overdue installments:
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| Installment Number | Principal | Interest | Late Fee | Past Due Interest | Total |
|---|---|---|---|---|---|
| May 1 | 2444.45 | 150.00 | 5.00 | 322.19 (0.00) | 2921.64 (2594.45) |
| June 1 | 2481.11 | 113.33 | 5.00 | 321.47 (0.00) | 2920.91 (2594.45) |
| July 1 | 2518.33 | 76.12 | 5.00 | 342.48 (0.00) | 2941.93 (2594.45) |
| August 1 | 2556.11 | 38.34 | 5.00 | 90.13 (0.00) | 2689.58 (2594.45) |
| Total | 10000.00 | 377.79 | 20.00 | 1076.27 | 11474.06 |
Restructuring
Then, on August 9, the Collector restructures the loan and the new loan in the amount equal to the outstanding balance is issued. The new loan is issued for 12 months. All other loan terms remain unchanged.
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