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Variable interest rates let you create loan products that adjust dynamically with the market. LoanPro let's you save the variable interest indexes in the software, and then use those indexes when creating and updating loans.
This article explains how variable interest rates work at a high level, and then Using Variable Interest Rates will show how to set them up in the software.
Use Case: Working Capital
Use Case: Variable Interest Rates/Working Capital
A business-to-business lender wants to offer a working capital loan with a variable interest rates. The lender finds they are spending lots of man hours looking up different base index rates and making changes to their loans. Their current system isn't set up to automatically pull rates from any indexes, and the only way to update a loan's interest rate is manually, one at a time. This not only causes the lender to lose time and money, but introduces more opportunity for human error.
The Variable Interest Rates feature make it easy to select which index rates to track, and whether you'll track the daily high, low, or closing value for the index. It includes a simple way to set up loans based on an index rate, and lets you update loan interest rates through API calls. Premium webhooks or lender-developed applications can be used to send API calls automatically. Automatic pulling from indexes and update of interest rates reduces both the time spent and human error introduced.
Variable interest consists of a few smaller components:
- LoanPro let's you save variable interest indexes in within LMS.
- Interest rates on individual accounts can be set or updated based on the current rates on your saved indexes. You can either use the rate directly, or modify it with minimums, maximums, or a margin (like adding 3% to the indexed rate).
- You can log an Interest Rate Change to update those accounts' interest rates.
- Payment recasting can be set up through tools outside of the LMS UI.
This Feature is Not
Let's clear up some possible misunderstanding's about LoanPro's variable interest tools:
- Interest rates on loans don't update automatically. You'll either need to use Premium Webhooks to set up an automatic update, or you could update them manually with an Interest Rate Change.
- Payment recasting is not yet handled within the LMS UI. We can support it, however, through some tools outside of the UI. If you're interested in recasting payments to match your adjusted interest rates, reach out to a representative from LoanPro, and they can help you configure it.
From here, you should check out Using Variable Interest Rates to learn how to set up your indexes and configure them on individual accounts. Once you understand how that works, you'll also want to see Loan Terms to see the context of the rest of setting up loans, as well as Interest Rate Changes.