It terms of Early Payments policy, loan can be repaid:
- Option A: Without Early Payments. The Use Early Payments option is disabled in Credit Product settings. Early payment is always applied on the due date irrespective of the actual payment date.
- With Early Payments. The Use Early Payments option is enabled in Credit Product settings. Early payment is processed on the actual payment date.
- Option B: Early Payments based on the Initial Principal. If an early payment covers the installment in part, the outstanding interest amount will remain unchanged.
- Option C: Early Payments based on the Reduced Principal. If an early payment covers the installment in part, the outstanding interest amount will be changed.
Without early payments
An early payment received will be recorded in the system, but it will not be processed and the payment schedule will not be changed until the due date of the installment. The installment is recalculated only on its due date. Other installments in the payment schedule are not recalculated.
On the due date:
1) If the total amount S of all early payments received exceeds the amount T of the current scheduled installment (S > T), this installment is repaid in full and closed, while the overpaid amount S - T is accounted as an early payment for the next scheduled installment.
2) If S = T, the installment is repaid in full and closed.
3) If S < T, the installment is repaid partially (see also Updating the outstanding balance (ENG)).
With early payments
When an early payment is received, the system:
1) recalculates the interest for the current installment;
2) applies a repayment of the installment (in part or in full, depending on the amount received);
3) if the amount received is greater than the installment amount, the system recalculates the further payment schedule.
Recalculating the interest
Settlement period (also called payment period) is the period when the installment is expected to be paid. It starts on the day after the previous installment's due date and ends on the current installment's due date.
NOTE: The settlement period of the first installment in the payment schedule starts the next day after the loan is disbursed.
The day an early payment is received, the system recalculates the interest for the nearest installment:
(1)
where
ID is the amount of interest,
IR is the interest rate for the payment period.
In general, this value is calculated from the initial Interest Rate (the loan's interest rate) defined in Credit Product settings. The calculation formula depends on the actual payment periodicity.
B is the outstanding principal,
D is the number of days passed from the previous due date / the loan origination date.
N is the number of days between the scheduled due dates (the due date of the previous installment and the due date of the current installment). For instance, for monthly installments N ∈ {28, 29, 30, 31}; for weekly N = 7; for biweekly N = 14.
Early repayment conditions for the current installment
On the day when the early payment has been received, the current monthly installment is calculated:
(2)
where
TD - total amount of the current monthly installment calculated on the date when the early payment was received,
P - principal amount derived from the payment schedule,
ID - interest amount calculated by formula (1) on the date when the early payment was received,
AF - commission amount derived from the payment schedule and applied to the current installment.
Next, depending on an early payment amount, the system repays the current installment in full or in part and updates the total outstanding balance (hereinafter “the outstanding balance”).
1) If the early payment amount S exceeds the total amount of the current monthly installment TD (S > TD), the system repays the installment in full, closes it and updates the outstanding balance. The updated outstanding balance is calculated by the following formula:
(3)
where
Bnew - updated outstanding balance after the receipt of the early payment,
B - outstanding balance before the receipt of the early payment,
S - amount of the early payment made.
Then the updated outstanding balance Bnew is used to recalculate the payment schedule for other installments. A new payment schedule is calculated according to a lending schema used (classic or annuity) and taking into account that a loan amount is now equal to the updated outstanding balance and a number of payments NP to be made is equal to a number of remaining outstanding installments. Due dates of the remaining outstanding installments and late fee amounts remain unchanged in the payment schedule.
2) If the early payment amount S equals the total amount of the current monthly installment TD calculated by formula (2) on the date when the early payment has been received (i.e. S=TD), the system repays the current installment in full, closes it and updates the outstanding balance according to formula (3). The payment schedule for other outstanding installments remains unchanged.
3) If the early payment amount S is less than the total amount of the current monthly installment TD (S < TD), the system repays the current installment in part according to the established priority described in paragraph 2 of the article “Updating the outstanding balance” and the current installment remains outstanding until the full repayment. In this case, the current installment will be displayed differently in the payment schedule in each of the following cases, while the payment schedule for other outstanding installments will remain unchanged:
I. The early payment amount is greater than or equal to the total amount of the current interest and commission (S >= ID + AF). In this case, the system repays the commission, current interest and the remaining amount (if available) of the early payment is used to partially repay the current principal amount. As a result, the current installment will be repaid as follows: the commission will be repaid in full, the interest will be repaid in part (in the amount ID) and the principal will be also repaid in part (in the amount S – ID – AF). If the Interest calculation based on reduced principal option has been selected in the credit product settings in addition to the selected Use Early Payments option, the state of the current installment will differ, since in this case the interest balance is to be calculated for the current installment as follows:
(4)
where Bnew is calculated by formula (3).
If the Interest calculation based on initial principal option has been selected, the interest balance will not change for the current installment.
II. The early payment amount is less than the total amount of the current interest and commission but is greater than or equal to the commission amount (S >= AF). In this case, the commission is repaid in full and the interest is repaid in part (in the amount S - AF) – these changes will be displayed in the payment schedule.
III. The early payment amount is less than the commission amount (S < AF). In this case, the system repays the commission in part according to the payment amount received (S) and the corresponding change will be displayed in the payment schedule.
Recalculating the payment schedule in case of overpayment
As it has already been mentioned in paragraph 2.1., each early payment falls under only one settlement period and can be used for the full repayment of the installment to which the settlement period corresponds. If during one settlement period several payments have been made (possibly on the same day) and the total amount of these payments exceeds the total amount of the current installment, the system closes only the current installment ahead of schedule, while the overpayment is always used for the repayment of the outstanding principal. If the overpayment amount exceeds the outstanding principal and the total commission amount, all outstanding amounts due for a loan get covered in full and the loan gets repaid.