If you're moving an existing loan into LoanPro, you'll of course want everything to work like it did in its old system. Whether you’re just getting started with our software or purchasing an existing loan, you need to know how to match the contract that the loan is performing under. This article will walk you through a step-by-step process that you and our representatives go through when matching contracts.
Before you begin you must know the following information concerning the loan:
- Beginning Principal Balance (Loan Amount)
- The date the loan starts/started accruing interest (Contract Date)
- The date the loan has its first payment coming due (First Payment Date)
- Frequency of the loan payments (Frequency)
And at least two of the following items:
- Interest Rate
- Number of loan payments (Term)
- Regular payment amount of the loan
As long as you know at least two of those items, the system can figure out the third value for you. All of this is very standard information for a loan contract to show, but if any of the required information is missing then it is not going to be possible for you to match the contracted information.
Lastly, determine what calculation type of loan is being computed:
- Simple Interest (Most common by far)
- Simple Interest Locked
- Interest Only
- Rule of 78
Because Simple Interest is the most common “Business-to-Consumer” loan type, we'll use that as our example in this article, but the steps of the process will be similar for any type of loan.
Matching a Contract
To start off, some basic information is required to calculate any loan. On the Loan Terms tab of the Account Setup page within a loan, you can enter that information and get a quick calculation as you continue to tweak the settings. The Account Setup is divided into five tabs, but the two we'll be working with here are 1) Loan Terms and 4) Advanced Configuration.
The Loan Terms page includes these fields:
- Total Amount
- Interest Rate
- Contract Date
- First Payment Date
Once the required fields have been entered select the Save & Calculate at the bottom of the page.
Once the loan has been calculated, the next step is to match the interest accrual. So before worrying about the payment amount that was generated by calculating the loan, we first need to check the interest – principal breakdown of the first payment. Within this same loan, navigate to Account Setup > Setup Tools, then click the three horizontal lines icon in the top left corner to select Roll Schedule.
For this loan, we see that the interest accrual in the first period is $79.17. If the interest accrual matches for your loan then you are finished with this step and can skip to the “Payment Amount” section. If interest accrual does not match then proceed to the next step.
Interest Does Not Match
If the interest – principal breakdown does not match, adjust the following settings inside of the Initial Setup tab to manipulate the breakdown. We have found it most effective to change one setting at a time so that it is easily recognizable which changes had the desired effect. After each settings change, simply select the Save & Calculate button between each change and consult the Transactions tab until the interest accrual matches.
- First Day Interest – If the amount of interest accrued needs to decrease, change First Day Interest to ‘No.’ If interest accrual needs to increase then change the setting to ‘Yes’. This field allows you to select whether or not you would like interest to accrue on the contract date. If ‘Yes’ is selected, interest will accrue on the contract date; if ‘No’ is selected, interest will not accrue on the contract date.
- Days In Year – This field allows you to select the number of days used in your interest calculation. “Frequency Specific” will use a 360 day year if your payment frequency is monthly, and a 364 day year for weekly and bi-weekly frequency. “Actual” will use a 365 day year regardless of frequency. For more information, please read the following article – Advanced Configuration – Days in Year.
- 1st Period Days – This option will only have an effect if the “Days In Year” is set to Frequency Specific. If “Days In Year” is set to Frequency Specific, the number of days from the Contract Date to the First Payment date is greater than a regular payment period, and your interest accrual needs to go down, then you’ll set this to ‘Force Regular’. If the number of days between the Contract Date and First Payment date is less than a regular payment period, and your interest accrual needs to go up, then you’ll be best served to set this to ‘Force Regular’ as well. For more information about what 1st Period Days actually does please read the following article – Advanced Configuration – First Period Days.
- Round Decimals – This option is best utilized when the original interest calculation is very close to the desired breakdown. It will be used when you’re within pennies of the target number. If you’re within pennies then we recommend changing from ‘two’ to ‘seven’, or if you’re already at ‘seven’ then change to ‘two’.
Contract matching a different software’s calculations is always a bit of a guessing game. That being said, there are going to be different combinations you may have to try. For instance, let's say the interest accrual is too high, and you adjust the First Day Interest to ‘No.’ However, that takes the accrued interest too low, and when you adjust Days In Year to Actual, it comes closer to the right value. If it's still not perfect, you may need to adjust the First Day Interest back to ‘Yes’.
Also, remember that our Success Specialists are available to help with contract matching.
Most likely, once the interest accrual matches, your payment schedule matches as well. If it does not, LoanPro has some helpful tools to get the payment amount in line with what you are expecting it to be.
- Roll Payment – This tool, found under the TIL Tools drop-down, allows us to have the system alter the values of Term, Interest Rate, or Underwriting Fee in order to roll the payment to your desired amount. For example, if the payment being calculated is $183.28 and you would like it to be $190.00, then 1 of 3 things need to happen. Either the number of payments need to decrease (because they’ll be paying more than previously calculated), the interest rate needs to increase (*this will change your interest accrual), or an Underwriting fee needs to be increased (*this will also change the interest accrual). For these reasons we recommend using ‘Term Exact’ when using the Roll Payment tool, as this will shorten or lengthen the term to solve for the payment amount.
- Roll Schedule – This is an advanced tool to use when setting up a loan. In essence, this tool allows you to create a custom repayment schedule for this loan. Take a look at Create a Schedule Roll for a more detailed explanation of this tool.
- Force – The Force tool is an easy, condensed, user-friendly Roll Schedule tool. All you’ll need to do to use this tool is select ‘Force’, select ‘Load Default’, then click the pencil next to the first line that appears. Once selected, fill in the number of payments desired, the payment amount, and the interest rate. Once that's done, click ‘Update’ then ‘Force Schedule.’
- Beg/End – The majority of all LoanPro clients will have this set at ‘End’; however, if you have a payment amount that is matching interest accrual and is matching all numbers except for the payment amount, try switching this to ‘Beginning’ and see if it makes the payment schedule match for you. If it does end up matching, it means your loans are actually being calculated as a rent/lease instead of a loan, and we recommend double-checking with our support staff to make sure that ‘Beginning’ is actually what you would like to use.
- Last As Final – If your contract balloons at the final payment, then all you’ll need to do is set this to ‘Yes.’ If it extends at the regular payment amount, all you’ll need to do is set it to ‘No’. This is a tool that will need to be used in concert with the ‘Schedule Round’ tool when trying to adjust the final payment amount.
- Schedule Round – This tool is very simple to use; all it does is arbitrarily round up or down based off of the final payment amount on the schedule. Using the example in the screenshot, if you wanted 36 payments of $183.28, all you would need to do is enter in a Schedule Round of $2.02.
If these options and tools are utilized correctly, your loans should match without any issue. In some instances, you might still see minor differences; this generally means that you have an irregular loan that may have some escrow, fees, or a slightly different configuration than what’s been entered into LMS. You can try entering those values in the other Setup Terms tabs or just give our support staff a call, who will be more than happy to assist. If you do contact our support team, please have a contract and amortization schedule ready to send to them so they can review and break down the raw numbers to work into the proper setup for the LoanPro Software.