Extra Towards Options
When logging a payment in LoanPro, you have different options when it comes to "extra" payment amount. For example, if a borrower's payment comes due for the amount of $300.00 and the borrower makes a payment of $350.00, they paid $50.00 more than what is due. This "extra" $50.00 can be applied in different ways.
Extra towards options will be different depending on if your interest is set to accrue between periods or between transactions. These options will be explained below.
For the interest application setting of "between periods", your options for "extra towards" are “principal only” and “next payment”.
- Principal only will apply the extra amount directly to principal. This will not affect the past-due calculation or the next payment amount on the loan. For example, if the “extra” amount is $10 and the next scheduled payment is $200, the next scheduled payment will still be $200.
- Next payment will apply the “extra” amount to the next payment. The application date of the “extra” amount will be the same as the next scheduled payment date. For example, if the “extra” amount is $10 and the next payment comes due on July 1, $10 will apply to the loan on July 1.
- Principal will apply the extra amount towards the principal balance on the loan. Extra towards principal differs from extra towards principal-only in that when you choose extra towards principal, the portion of the payment that exceeds the current amount due on the loan (the extra portion) will also reduce the amount due on future payments. For example, if $80.00 is due on the loan and the borrower pays $200.00, selecting extra towards principal will mean that after the payment applies, -$120.00 will show due on the loan, reducing the future amounts due by $120.00. Using this option allows the borrower to pay ahead on the loan, meaning the following payments on the loan will be reduced by the extra principal paid. Future payments will not show as due until the due amount exceeds the extra principal amount paid. So in our example, the extra $120 will cover the next $80 amount due and $40 of the amount due after that. If the customer was on a monthly payment frequency, they would not show due for another payment for 2 months and then only $40 would be due.
- Principal only will also apply the extra amount towards the principal balance on the loan, therefore lowering the principal balance by the extra amount. However, this will not affect/pay down the next payment unless the next payment is the final payment. For example, if $80.00 is due on the loan and the borrower pays $200.00, selecting extra towards principal only will mean that $80.00 will cover the amount due bringing the account current and $120.00 will be posted as a principal only payment and the next scheduled payment will still be due for the full amount.
- Classic will apply the extra amount according to the following sequence; first, to any amount due on the account; second, to the next scheduled due payment that has not been covered; and finally, any remaining amount will be applied as a principal only payment (doesn't affect the amount of future payments until the end of the loan). For example, if $80.00 is due on the loan and the borrower pays $200.00, selecting extra towards classic will mean that $80.00 will cover the amount due bringing the account current, $80 would cover the next scheduled payment and $40.00 would be posted as a principal only payment. The result would be that the customer would not show due for their next payment, but would be required to pay the full amount of the payment after that.
- Classic v2 works in a manner similar to Classic, with the payment applying to the current amount due, then covering the next two scheduled payments and then principal only. For instance, if $80 is due but the borrower pays $300, then $240 will go to the due payment and the next two, and $60 will go towards principal. Other than the fact that Classic V2 covers the next 2 scheduled payments, instead of only 1, the main difference is that Classic V2 does not cover scheduled payments beyond the next two scheduled. If the customer makes a payment larger than what is due and the next two scheduled payments are already covered, the extra towards all becomes a principal only payment. This limits the ability of a customer to only pay two payments ahead in all circumstances.