When dealing with a large portfolio of different customer accounts, payments and payment schedules for individual accounts will not always be straightforward. While these cases might be overwhelming, LoanPro has several tools built into our loan management system (LMS) to deal with these special scenarios, regardless of how complex they get.

Days in year

The typical account payment calculation doesn’t take into account non-uniform payment periods. In reality, not all months last 30 days and there are 52 weeks and one day in a year (two days for a leap year). This means that more interest will accrue in the month of January than in the month of February if interest is accruing daily. In LMS, you can calculate interest with the actual number of days in a year or month, or with uniform, level payments based on whatever frequency you're using.

Actual

This option calculates the interest that accrues daily and then multiplies it by the number of days in a payment period in order to get the total period interest accrual. This means interest accrues based on a 365-day year.

Interest accrual using actual days in year

When interest accrues using the actual number of days in the year, the amount of interest that accrues in a month depends on the number of days in the month. This is because the account will accrue 1/365th (or 1/366th for a leap year) of the total interest each day. Then, that daily rate is multiplied by the number of days in a payment period. If an account has monthly payment periods, then that will mean more or less interest depending on the number of days in a given month.

For instance, let's say we have an account with a 25% interest rate. Dividing that by the number of days in a year (calculated as 0.25/365), we find that accrues 0.0685% interest each day. Then, we would multiply that 0.0685% by the number of days in a month. For a 31-day month, 0.0685% times 31 or 2.1232%. For a 30-day month (0.0685*30), we get 2.0547%. In February (0.0685*28), we get 1.9178%.

Frequency

This option will calculate payments and accrue interest based on uniform payment periods for your payment frequency. That means that if you have a monthly frequency with a payment period of 30 days, and with 12 payment periods per year, the days in the year equal 30 (days in period) x 12 (payments per year) = 360. Semi-monthly payment periods also use a 360-day year because 15 x 24 = 360. Weekly and bi-weekly frequencies will use a 364 day year because 7 x 52 = 364 and 14 x 26 = 364.

When most people hear this, they ask the same question: where did the interest from those other days in the year go? Don't worry, you're still getting interest for those days. Rather than dividing the annual interest rate into 365 portions, the frequency method divides it into the number of payment periods (usually 12, 24, or 52).

For example, let’s say you are managing a 36-month loan for $12,000 at a 12% interest rate. If the Days in Year option is set to Frequency, the payment schedule is calculated to be 36 monthly payments of $398.57.

If you change the setting to Actual, the payment schedule is calculated as 36 payments of $398.57 and 1 payment of $4.01.

Let's take a look at another example. Here is an account amount of $11,152.00 with an interest rate of 25% and payment amount of $595.20. This is how the first payment breaks down between interest and principal in a Frequency scenario:

As you can see, the interest portion of the first payment is $232.33. This is calculated as the monthly interest rate multiplied by the average daily balance for the payment period. To get the period interest rate, take the yearly rate of 25% and divide it by the number of payment periods in a year (12). This gives a monthly interest rate of 2.0833%. If we multiply that by the average daily balance for the first payment period of $11,152 we get 11,152 x .020833 (the percentage as a decimal) = 232.33, so $232.33 will be the interest portion of the first payment.

In an Actual scenario, the first payment breaks down as follows:

You can see that the interest portion for the first payment is $229.15. Since the payment periods in a monthly loan are actually of different lengths, we will calculate monthly interest as:

monthly interest = daily interest rate x average daily balance x number of days in the period

The daily interest rate is calculated as:

25% (yearly interest rate) / 365

When we plug in the numbers we get:

25% / 365 = 0.0684%

So 0.0684% is the daily interest rate. Since the average daily balance for the payment period is $11,152 and there are 30 days in the first payment period, interest for the period is calculated as:

.000684 (daily interest rate converted to a decimal) x 11,152 x 30 = 229.15

So, $229.15 worth of interest will accrue in this period.

You’ll notice if you multiply 0.0684% by 30 (days in the period) you get 2.0548% monthly interest. As we calculated above, the monthly interest rate for our Frequency scenario was 2.0833%. We could have calculated that rate in the same way as we calculated the rate in our Actual scenario as:

25% (yearly rate) / 360 (days in year) x 30 (days in period) = 2.0833%

Since our interest rate is slightly higher in the Frequency scenario, it compensates for the 4 days of “missing” interest. In most cases, the calculated payment schedules with either Days in Year selection will be quite close.

First period days

Often when an account is made, the first payment period (period starting when the account is given until the first payment comes due) is a little longer or a little shorter than a standard payment period. LMS allows you to specify how you’d like the system to calculate interest accrual for this first payment period.

Actual

The system will automatically default to the Actual option if the Days In Year setting is set to Actual. The actual option will accrue interest in the first period for the actual number of days that are in the period. So, if payments come due monthly then a standard monthly period is 30 days. If your first period is actually 25 days long, only 25 days worth of interest will accrue in the period.

Monthly actual example

An account will accrue 1/365th (1/366th for leap years) of the total interest each day. So, an account with a 25% interest rate accrues 0.0685% (calculated as 0.25/365) interest each day.

On a $10,000 loan with a 25% interest rate, if the first period contains 45 days, the total interest that accrues will be 25% divided by 365 days multiplied by 45 days multiplied by the $10,000 account balance. This gives (25%/365) x 45 x $10,000 or $308.22.

Weekly/bi-weekly actual example

When payment frequency is monthly, each payment period may have a different number of days. When payment frequency is weekly or bi-weekly, each payment period has 7 or 14 days respectively. Because of this, first period days using a frequency-specific or actual days in year look the same.

For a $10,000 loan with a 25% interest rate and a weekly payment frequency, daily interest is calculated as:

$10,000 x (.25/365). This gives $6.85 worth of interest per day. If the number of days in the first period is 12, this gives total first-period interest of $6.85 x 12 or $82.20.

It's important to note that if the first period starts on the 1st and ends on the 7th, this is only a 6-day period, because the period interest is not inclusive of the last day. Interest accrued that day will be a part of the interest for the next payment period.

Force regular

The force regular option lets you tell the system that regardless of the number of days in the first period, the system should calculate it as if it has the same number of days as a standard period. For example, if payments come due monthly, a standard payment period is 30 days long. If your first period is only 25 days long, 30 days worth of interest will still accrue in those 25 days if you choose the force regular option.

If this option is chosen in combination with a Between Periods Interest Application and a Frequency Days In Year selection, and you change the due date for any payment periods, the amount of interest that will accrue during those periods will still be equal to the amount that would have accrued in a payment period of a standard length (e.g. 30 days if the payment frequency is monthly).

Frequency

The frequency option will view the first period as being the same length as a standard period for monthly and semi-monthly periods if it is within 1 or 2 days of the length of a standard period. If payments come due monthly, then a standard payment period is 30 days long. If the payment period is semi-monthly, then the standard payment period is 15 days. If the first period on a monthly loan is actually 31, 29, or 28 days long, 30 days worth of interest will accrue in the first period. If the first payment period on a semi-monthly loan is actually 13, 14, 15, 16, or 17 days long, 15 days worth of interest will accrue in the first period.

Monthly frequency example

If you have a $10,000 loan with a 25% interest rate and a 45-day first period that starts on January 1, the interest that accrues in the first period will include 31 January days and 14 February days. Using the calculated daily rates for January, we accrue 25% divided by 12 divided by 31. Then we multiply it by 31 days and $10,000. Here's the whole thing written out: (25%/12/31) x 31 x $10,000. Completing this equation results in $208.33.

For February, we get 25% divided by 28 days in the month, then multiplied by 14 days and multiplied by $10,000. This is written as (25%/12/28) x 14 x $10,000 and equals $104.17.

If we add the interest together, we get a total first period interest of $208.33 + $104.17 or $312.50.

Weekly/bi-weekly frequency example

When payment frequency is monthly, each payment period may have a different number of days. When payment frequency is weekly or bi-weekly, each payment period has 7 or 14 days respectively. Because of this, first period days using a frequency-specific or actual days in year look the same.

For a $10,000 loan with a 25% interest rate and a weekly payment frequency, daily interest is calculated as:

$10,000 x (.25/364), this gives $6.87 worth of interest per day. If the number of days in the first period is 12, this gives total first-period interest of $6.87 x 12 or $82.42.

Unit Period Odd Days

The Unit Period Odd Days is the last option. Interest in full periods are calculated using the payment period interest rate (e.g. r/12) and odd-days interest is calculated using the daily rate (e.g. r/360 x # of odd days). Unit periods are actual months, so January 10th to February 10th is one unit period, and even though it is 31 days, the interest is calculated as a standard frequency period of 30 days.

It is important to note that for first periods that span from February to March, the unit period will be 28 days (29 days in leap year), and will be calculated as a standard frequency period of 30 days. So, if the first period is February 12th to March 14th, which is 30 days, it will be calculated as 1 period plus 2 odd days.

Payment date application

The payment date application gives you the option to have payments apply either based on the actual payment date, or the scheduled payment date.To configure the payment date application, navigate within a specific account to Account Setup > Setup Terms > Advanced Configuration. Here, you can select actual/next or last/next to apply to the account.

Here are the available options for payment date application:

• Actual/Next - The Actual/Next option is by far the most typical selection. Making this selection means that if the account is past due, the payment will apply based on the actual payment date. If the account is current, the payment will apply to the next payment date.
• Last/Next - This option lets you choose to have payments apply either to the date of the first missed payment on the account, or to the next payment. The next payment scenario will be different depending on the interest application setting. So, if you had a payment that came due on February 1, but it is now February 23, if a payment applies as Last/Next, it will apply on February 1. The payment date will actually be changed in this scenario to February 1. If you change the setting back to Actual/Next, it will have no effect on payments that have already been logged.
  This setting is usually not desirable because you don’t accrue any extra interest when payments are late. When a borrower pays late the payment is applied as though the borrower paid on time.
• Last/Next Application - If a payment with a setting of Last/Next is logged on 10/22/2022, but the borrower had previously missed payments on 8/31 and 9/30, the Last/Next payment application will apply the payment to the missed payment that is furthest in the past. This means the payment applied on 8/31. So, even if you select the date of 10/22/2022 while logging the payment, it will be applied on 8/31.

Fees paid by

Fees paid by is a selection that will let you choose how payments apply to fees on an account. This selection is made in the Advanced Configuration section of Setup Terms.

Date

If you select Date, payments will apply only to fees that came due on the account on or before the date a payment applies.

Notice that even though the fee came due the day after a payment was made, since it wasn’t on or before the payment date, the payment has no application to fees.

Period

This option will apply a payment to any fees that came due before the payment was made and any fees assessed in the same payment period.

Here you will see that even though the fee came due after the payment was made, since it came due in the same payment period the payment still applies to the fee.

History and Dates

The History and Dates are settings that can be turned on or off on an account. History refers to the history transactions on an account, while Dates refer to the way the system looks at dates when calculating the account term.

You can find the History and Dates settings inside of the Account Setup > Setup Terms tab inside of an account. These settings are always turned on when an account is active. If the account is inactive, the History and Date settings are automatically turned off. However, you can make changes to the settings while the account remains inactive.

The history and dates settings are located at the bottom of the account terms tab. If History is turned off, you won’t see the Dates setting, and it will be set to off. You can have History turned on and set Dates to either on or off using the History for Setup and Dates toggle switches. Click the toggle switch to change the status of History or Dates settings.

History

When the History is off, the account isn’t taking into account transactional items like payments, charges, credits, advancements, etc. when calculating the payment schedule of an account. As such, you will only see scheduled and forecasted payments when you look at the Transactions report, as shown below.

If you turn the History on, you will see all of the transactions that have occurred on the account.

This will affect the account numbers that are pulled directly from the payment schedule (e.g. principal balance, payoff), so if you're looking for accurate information, you'll likely want the History to be turned on for your accounts.

Dates

Turning on Dates causes LMS to look at the dates on an account in relation to the current date. If Dates is on and today is the 31st of October, the system will know that the 2nd of September is in the past. If Dates is off, the system doesn’t use any date to reference the present, so the account term is more like an undefined piece of time. 

If Dates is on, the Transactions report will show an accurate history of what occurred on the account.

Again, having Dates set to off can cause the numbers pulled from the transactions report to be inaccurate, so you will usually want Dates turned on for accounts you are servicing. The easiest way to do this is to activate the accounts.

If History and Dates are turned off, the Transactions report will look how it would have on the contract date, which allows you to see what the account would have looked like prior to any transactions.

Force payments

In our LMS, we have several tools that help set irregular payment schedules. The best known is probably schedule roll, which lets you add several lines of a schedule. For instance, you can start with a low introductory rate with small or no payments, and then increase payment amounts or interest rates as time goes on. Sometimes schedule rolls won't reach the exact balance you want, when this happens, you can use a schedule round to adjust the final payment.

But instead of using those two tools independently, you can use the force tool to create a schedule roll that automatically adjusts with a schedule round. Using the force tool is easy and can be done from the Account Setup > Setup Terms inside any specific account. If the account is activated, you won’t have access to the force tool until you inactivate it.

To locate the force tool, navigate to Schedule Tools > Force. After clicking 'Force' you will be taken to a pop-up with the available options.

Your options include:

To create a new payment schedule, click 'New Schedule Line'. Here, you can enter in the available fields for the schedule. Click 'Save' when you're done.

After saving, click 'Force' to implement the payment schedule on the account.

Payment Match

In a typical account, the payment amount is calculated using the term of the account, the present value of the account (account amount), and the interest rate of the account. But sometimes it’s helpful to tell the system the payment amount you want and have it fill in one of the other account terms in order to calculate the payment. You can do this using the Payment Match tool.

To use the Payment Match option, navigate to Account Setup > Loan Terms inside of a loan account. If the account is activated, inactivate it so you can see the button.

Click 'TIL Tools', and select the 'Payment Match' option.

Here you can enter the desired payment (this is what you want the payment to be after the roll), how to solve for payment, and which escrow buckets the final payment amount will include. There are five options for solving under the ‘Solve With’ list:

• Underwriting/Refinance Fee – This option will compute an underwriting fee (which is added to the principal balance when calculating payment) that should be added in order to hit your desired payment amount.
• Interest Rate – This computes an interest rate up to four decimal places that will help you hit your desired payment amount. This may not get you to the exact payment amount you entered. This option uses an iterative calculation (it has to run the calculation several times to get the best result) so it may be slower than the other options.
• Whole Term – This will only add or subtract whole numbers from the term to try and hit the target payment amount. Because of that, this method won’t get you to the exact payment amount except in very rare circumstances.
• Term Exact – This will add whatever fraction of a term is necessary to hit the target payment amount.
  Whole Term with Fee – This will round to the nearest whole-number payment term and then add an underwriting fee to hit your target payment amount.

Once you have entered the information for your payment roll, click the 'Payment Match' button.

Last as final setting

The last as final setting is part of an account's setup terms, specifically the advanced configuration. It lets you decide whether the originally-calculated last payment on an account should remain the last payment regardless of the payment history unless the account is paid off early. This means that the final payment originally calculated when an account is set up will grow larger or smaller throughout the account’s lifetime instead of extra periods being added to the account in order to accommodate for extra interest that accrues when payments are made late, or payments that are missed altogether.

As an example, let’s say you create a loan for $10,000 at 12% annual interest with 12 total payments that come due each month. In this example, if you choose a days in year setting of “Frequency”, you should end up with 12 payments of $888.49.

This means that the originally calculated final payment is payment number 12. If you have chosen to use the last as final setting, the final payment will grow or shrink when needed if payments are missed or made late. So, in our example, if the first two payments are missed, the end of the schedule may adjust as shown below:

You can see that the final payment for this case has ballooned to $2,857.90. If you look at the same account without last as final selected, the end of the payment schedule will look like this:

As you can see, in this circumstance, the account term has extended to 15 payments.

Curtailment date templates

A curtailment is a payment on a flooring account. Since flooring account payments often come due with an irregular frequency and in irregular amounts, curtailment templates let you create a repayment schedule in a manual way instead of letting the system calculate it for you.

To create a new curtailment template, navigate to Settings > Loan > Setup New Loan > Curtailment Date Templates inside your company account.

Click 'Add' to create a new curtailment template.

Enter a name for the template in the Name field.

You'll need to enter the number of days since the contract date that the payment will fall. If you have entered previous curtailments for this template, it’s the number of days since the last curtailment.

For example, if you enter 10 into the Days field for your first curtailment, and 10 into the Days field for your second curtailment, and you create an account with a contract date of 01/01/2022, the first payment will come due on 01/11/2022. The second payment will come due on 01/21/2022

You also need to enter an amount for the curtailment. Clicking 'Amount' will let you enter a flat dollar amount, or clicking '% Of Loan Amount' for a percentage of the total account. Keep in mind that if you choose to enter a percentage of the account amount, that will not equal the principal portion of the payment, but rather the full payment. This means that if you gave a $1,000.00 loan and you enter 10% as the amount of the first payment, the first payment will be $100.00. Some portion of the $100.00 will be interest and some portion principal. The remaining account balance will not be $900.00 because not all of the $100.00 first payment will apply to principal.

Once you’ve entered the days and amount for the curtailment, click ‘Save’.

After you enter all the curtailments you want for the template, click 'Save'.

Curtailment Dates

The curtailment dates setup tool lets you update the curtailment dates for the account, including curtailment dates that were entered as a part of the account setup. To add or update account curtailments, navigate to Account Setup > Setup Tools > Curtailment Dates inside a specific account.

To add a curtailment date, click 'Add' and select 'New Curtailment Date'.

In the curtailment date box, you can enter a date for the next curtailment as either an amount or a percentage of the account amount that will come due on the date you enter. There are shortcuts you can click to help you enter dates that are 30, 45, 60, or 90 days after the previous curtailment.

Click 'Save' once you’ve entered all the information.

The options to the right of the curtailments allow you to either edit or delete them.

Zero Principal Balance

If the repayment of an account goes roughly according to plan, it's likely that the principal balance will eventually be $0.

Principal balance is zero, payoff is zero

If the principal balance is zero and the payoff balance is zero, the account will be zeroed out. This means that amount and days past due, due principal, due interest, and due fees will all be zero.

It also means that when the calculator runs during daily maintenance, those zero values will be captured in the account status archive.

Principal balance is zero, payoff is greater than zero

If the principal balance is $0, but there is still outstanding interest, fees, or payoff fees on an account, the payoff balance will be greater than zero. Daily snapshots will continue to be added to the account status archive. No additional interest will accrue on the account, because the principal balance is zero. However, any outstanding due interest, fees, or payoff fees will remain. Amount and days past due will continue to be calculated as they were before the account reached a $0 principal balance.

If the interest balance on the account is greater than $0, forecast payments will still be added to the transactions report. This will not be the case if only fees or payoff fees remain as they are not included in forecasted payments.

Principal balance is less than zero

In the event that the principal balance is overpaid and is less than zero, the numbers on the account will be zeroed at the end of the period after the balance goes to zero. In practice, what this means is that the calculator will exit and no longer calculate any balance on the account including due interest, fees, and payoff fees, after the period in which the account goes to zero (e.g. principal balance less than zero). This means that the amount and days past due, payoff balance, due fees, due interest, and due payoff fees will all be zero.