Interest Rate Changes

Complexity:    

Audience: Upper Management, Loan Servicing/Collections Managers, Administrator, Compliance, Data

Introduction

Some loans include planned, contractual changes to the interest rate during the life of the loan. This is done for several reasons including changing the interest rate to keep pace with changes to the federal funds rate, prime rate or other base-line interest rates. Changes in interest rate may also be used as a motivator to pay off a loan earlier.

LoanPro enables lenders to set up planned interest rate changes when a loan is created or at any time in the future. Multiple interest rate changes can be created per loan. For each change, you can set the amount and the apply date, or the date on which the rate will change.

In this article, we'll go over the specifics of how to create an Interest Rate Change. We'll also cover information on the behavior of this feature and how it works in coordination with other features.

How Interest Rate Changes Work

To create a new interest rate change, open the loan you want to work on. Navigate to Account Setup > Setup Tools.

From the drop-down, choose "Interest Rate Change".

Click the Add button to add a new Interest Rate Change.

Now, enter the following information for the change:

  • Description - This is a description of why the change is being made.
  • Interest Rate - This will become the interest rate on the loan. Note that the interest rate frequency (annual, monthly, etc.) will remain the same setting that's found in the loan's Setup Terms.
  • Adjustment Method - You won't need to enter this, because "Fixed" is the only option. Fixed means the interest rate won't change from that point forward, unless another interest rate change is applied on the loan. (We may develop more options in the future, but for the time being, it's limited to Fixed.)
  • Apply Date - This is the date on which the interest rate will change. The change take effect on the date entered and will be inclusive of this date.
It's important to note that Interest Rate Changes "win" against schedule rolls. So, if a schedule roll has been set on the loan, when the apply date for an Interest Rate Change arrives, the rate specified by the Interest Rate Change will be the one the loan caclualtor uses. If a new schedule line then applies, the rate specified by the Interest Rate Change will still be used.
Interest Rate Changes do not persist through loan modifications. If a modification occurs, the interest rates specified in the modification will be used by the loan calculator.

Common Uses & Questions

Upper Management Use
It is important to understand that there is support for easily adjusting the interest rate on specific dates. If your company gives loans with interest rates that aren't fixed, this feature may work well for you. Note that this isn't a true variable interest rate feature.
Loan Servicing/Collections Managers
It's important to know that interest rates can change on loans, and whether your company uses this feature. It may be necessary to provide information to borrowers who are wondering why their interest rate is different.
Administrator Use
If you are configuring LoanPro for your company or working with our Experience Team to set things up, it will be helpful to know that this option is available and how to create Interest Rate Changes for your loans.
Compliance Use
It may be necessary to check the consistency between Interest Rate Changes and your loan contracts to make sure you are in compliance. Interest rate changes are not taken into account in our APR calculation, so keep that in mind if this feature is used by your company.
Data Use
Information about interest rate changes can be pulled from the database and through the API. If you need this data, it can be found in the loan_interest_rate_change_entity.

Can this feature be used to support variable interest rate? This issue a feature isn't designed to support variable interest, but API calls can be made to update interest rate as needed. However, changing the interest rate will not change the payment amount.

Can Interest Rate Changes be imported? Not yet. Interest Rate Changes can be made through the API, but imports aren't supported currently within LoanPro's LMS.

Will this affect a loan's APR? Yes. Interest Rate Changes will alter a loan's APR, which of course has legal ramifications. If you don't immediately see the APR change in your loan Setup Terms, try hitting the 'Save & Calculate' button to re-calculate it.

What’s Next

If you are interested in more loan setup tools, check out the Setup Tools article.


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