Pay Off a Loan
Introduction
The desired outcome for a loan is that the borrower will pay it off. This article covers paying off a loan in LoanPro. There are many scenarios where the loan will not be paid off in the traditional sense. For more information about how to close out a non-performing loan, or how to close a paid off loan, see Close a Loan.
Paying off a loan may seem simple. At the inception of a loan, LoanPro will calculate a repayment schedule that includes the dates and amounts of the payments that should be made on the loan. In a perfect world, the borrower would simply make every payment on the correct date in the correct amount. This rarely happens, and payments that aren’t made strictly according to the schedule cause more or less interest to accrue on the loan.
There are other payoff concerns as well. Do you charge any kind of a fee at the time of payoff like a GPS removal fee (somewhat common in the automotive lending industry) or an early payoff fee. Do you quote today’s payoff, or do you quote a 10-day payoff. Do you need to give the borrower a payoff number without knowing when the borrower will actually remit the final payment? LoanPro accommodates for these circumstances.
How To
Start From the Loan Summary Tab
To initiate payoff from the loan summary tab, start at the Payoff section of the Loan Summary. If you know the date you want to use for the payoff of the loan, enter it into the Payoff Date field. This field defaults to today’s date. Click (Show) to calculate payoff based on the date you entered. This will also show you 10 days worth of payoff numbers starting on the date entered in the Payoff Date field. Choose to payoff the loan on one of these dates by clicking in the correct row. This will load the payoff date and amount into the payment page and mark the payment as a payoff payment.
Start From the Payments Tab
You can also pay off a loan via the Payments tab. To use this method, navigate to Servicing > Payments. Then, click 'Log Payment' to be taken to the payment page.
Once the payment has been set as a payoff payment and the amount and date are correct, simply continue to log the payoff payment like you would any other payment. A payoff payment is unique because it will pay everything outstanding on a loan. If the date you chose for the payoff is after today’s day, the loan balance will not be $0.00 until that date.
If the amount entered into the Amount field is different from the calculated payoff amount for the Date selected are different, the difference between the two values must be accounted for in order to bring the account balance to zero. When navigating the Preview & Confirm tab, a dialog box will pop up that will ask you how to apply the difference. It will give you the appropriate options based on whether the amount you entered is more or less than the calculated payoff amount.
If the amount you entered is less than the calculated payoff for the date entered, you will be given the option to apply the difference either as a credit, or you will have the option to make the credit a charge-off. If you choose to charge off the credit, use the “Mark Credit As ChargeOff” drop-down. Choose a category for the credit from the “Category” drop-down.
If the amount you entered is more than the calculated payoff for the date entered, you will be given the option to make up the difference by either applying an advancement or a charge to the loan. The payoff payment will then apply to the total outstanding amount on the loan, including this charge or advancement. If you choose to make up the difference through an advancement, you will have the option to select a category for the advancement from the Category drop-down.
Why Can’t Payoff Be Whatever I want?
In some systems, you’re given the option to simply apply whatever payments you want and once the principal balance of the loan gets close enough to $0.00, the system will consider the loan paid off. So why is LoanPro so exacting? Why does LoanPro make you apply every penny of a payoff payment to an appropriate loan transaction? Payoff on a loan is always the sum total of all the outstanding amounts on the loan on the payoff date. This is the mathematical reality of how loans work. Since the way a payoff payment applies to a loan can have legal, accounting, and tax consequences, it's an important thing to get right.
For example, if you have a borrower underpay a loan and you charge-off the difference, you will get a tax advantage because unpaid principal is considered a loss on a capital asset, which can offset ordinary income on your taxes. If a borrower overpays a loan, you are taxed on the portion of the overpayment depending on whether it was applied to loan principal, was collected as revenue, or was refunded to the borrower.