Example 1. Installment Loans

Case Description

Suppose your Lending Company is offering loans for purposes like car repair, household, holiday and travel, etc. and the loan terms need to be as follows:

1. Repayment shall be made once every two weeks. Loan amortization shall be in multiple equal installments (the Annuity method);
2. The amount can be from $500 to $2500;
3. Loan term can be up to 6 months;
4. Lending company's reward comes from fees (rather than from interest), specifically:
   • The one-time Origination Fee of 15% applied against the loan amount;
   • The recurring Administrative Fees of 2% applied against the initial loan amount. Administration Fee is charged with every installment (i.e. once every two weeks).
5. For overdue payments, there shall be a missed payment fee of $30. The fee needs to be applied on the 3rd day of overdue.

Below, there's a step-by-step guidance on how to configure a credit product to implement a loan policy like that.

Setup procedure 

Step 1. Adjust overdue fees by creating a Late Fee configuration. Go to System → Past Due Settings. Add a Late Fee Configuration: Set the Installment past due (days) field to 3 days and set the Absolute fee field to 30 dollars (as specified in Paragraph 5 of the Case Description above). Enter the name such as Missed Payment Fee. Click OK and then click Save Settings. See also /wiki/spaces/TLKB/pages/402751648 for further information.

Step 2. Go to the System workplace and select the Credit Products tab on your left.

Step 3. Click the ADD NEW RECORD button above.

Step 4. Enter the name of the credit product. For the purposes of this article, the name Consumer Loan (up to $2500) will be used.

Step 5. Enter the Description: "Small loans for purposes like car repair, household, holiday and travel, etc.". NOTE This explanatory text will be visible only by Back-Office users and not by Borrowers.

Step 6. Now the loan terms can be specified.

1. Set Loan Type to Regular Repayments, and Periodicity to BiWeekly. Set Type of Calculation to Annuity.
2. Enter $500 to the Min Amount field. Enter $2500 to the Max Amount field.
3. Enter 1 month to the Min Term field and 6 months to the Max Term field.
4. Enter 0% in the Interest Rate field. Tick the Use Commission box on the right. Parameters of commissions will appear. Enter 2% in the Admin. Fee box and 15% in the Origination Fee box.
5. In the Late Payments section, tick the Use Late Fees checkbox and select Missed Payment Fee (which you set up on Step 1 above). Don't forget to enter 0% in the Overdue Interest Rate field and 0 in the Late Grace Days.

Step 7. Enter a small value in the Write-Off Tolerance input field, if you are willing to automatically close loans with insignificant outstanding balance. For instance, enter  $ 0.5 to automatically close (write off) loans with an outstanding balance less than $0.5. 

Example 2. Payday Loans

Case Description

Suppose your Lending Company is offering short-term small cash loans and the loan conditions need to be as follows:

1. Repayment shall be in a single installment at the end of the loan term;
2. The amount of a loan can be from $100 to $500;
3. Loan term can be 2 to 30 days;
4. Lending company's reward comes purely from an interest of 0.6% daily;
5. For overdue payments, an increased interest rate of 1.8% daily applies. The overdue interest shall be accrued on the amount of principal that remains to be paid. The overdue interest shall be cancelled, if the Borrower manages to repay the amount due within 3 days from the due date.
6. Early loan repayment is supported and endorsed. The remaining amount of interest will be recalculated and recuced accordingly, if the Borrower makes an advance payment that (1) not only covers the currently accumulated interest, but (2) also covers the principal (in full or in part).

Below, there's a step-by-step guidance on how to configure a credit product to implement a loan policy like that.

Setup procedure 

Step 1. Go to the System workplace and select the Credit Products tab on your left.

Step 2. Click the ADD NEW RECORD button above.

Step 3. Enter the name of the credit product. For the purposes of this article, the name Payday Loans up to $500, 0.6% daily will be used.

Step 4. Now the loan terms can be specified.

1. Set Loan Type to Payday Loan.
2. Enter $100 to the Min Amount field. Enter $500 to the Max Amount field.
3. Enter 2 days to the Min Term field and 30 days to the Max Term field.
4. Enter 0.6% in the Interest Rate field.
5. In the Late Payments section, enter 1.8% in the Overdue Interest Rate field. Select Principal Debt in the Overdue Interest Type drop-down box. Enter 3 days in the Late Grace Days field.
6. Tick the Use Early Payments checkbox on the right. Select the reduced principal option.

Step 5. Enter a small value in the Write-Off Tolerance input field, if you are willing to automatically close loans with insignificant outstanding balance. For instance, enter  $ 0.1 to automatically close (write off) loans with an outstanding balance less than $0.10. 

Now, the credit product is set up. It can be selected on the Origination stage, in the Credit Product drop-down box of the New Loan Application window.

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