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Audience: Loan Servicer or Collector, Loan Servicing/Collections Managers
LoanPro is a robust software. And due to the naming conventions of the loan industry, there are some instances of similar terminologies used for different concepts. One particular instance that may cause confusion is the difference between an “active loan status" and an “activated loan.” We'll explain the difference in this article.
How They Differ
The big picture is that activating a loan is a change to how calculations actually work, while an active status is just a label. That status might trigger some behavior in the system based on your Rules Applied, but on its own it won't do anything.
Activating a Loan
Activating a loan is the user's way of telling LMS to proceed with the calculation of the loan using the numbers they have entered. Activating the loan locks those values in and ensures the consistency of amortization. When the loan is activated, LMS recognizes actual dates instead of looking at the loan term as a singular length of time with no specific dates associated with it. In other words, missing scheduled payments will now accrue interest, and LMS will display forecasted payments only in the future of the current date.
Inactivated loans will still accrue interest if loan values have been entered and the 'Save & Calculate' button has been clicked. If the loan values have not been saved and calculated, no interest will accrue.
Here are some results of activating a loan:
- Loan terms will be locked
- Late fees will be applied if future payments are missed
- The past-due amount and payoff amount will be calculated correctly
- You will have access to additional tools like Loan Modification, Advancements, Change Due Date, etc.
On the other hand, an active loan status is a little different. Loan statuses are a status label that is applied to a loan for tracking purposes, and one of the default statuses is “Active".
An "Active" loan status is intended for loans that are actively being serviced, meaning payments are being made. LoanPro allows you to customize your loan statuses, though; if you would prefer, you can change the name of this status to something else, such as “Open.” We recommend making a change if it would make it easier to keep the terminologies straight.
Since there are many steps (and unexpected events) that happen during the loan lifecycle, loan statuses need to be flexible. In keeping with the example above, it wouldn't make sense to keep an “Active” loan status on a loan that has been completely paid off. For this reason, you would change the loan status to “Closed”, or to another customized status you created.
The “Active” loan status can be paired with sub-statuses that provide more information about where the loan is in the loan lifecycle. If the borrower retains an attorney, you may want to keep the loan status as “Active” and add a sub-status titled “Attorney Retained.” If the issue is later resolved and payments resume, you can remove the sub-status. For more guidance on how you can configure loan statuses into your company's needs, check out our article Loan Status and Sub-Status.
Despite the similarity of these terms, there are differences. To summarize, activating a loan locks in its setup terms and schedule, while an active loan status is a status label assigned to a loan that is being serviced. It is possible to have a loan with an active loan status that is not currently activated.
If you'd like to learn more about the topics we've discussed in this article, and you can bear to read the word "active" a few dozen more times, consider reading our Activated Loans and Loan Status and Sub-Status articles.