LoanPro's payment types feature allows you to choose a payment application waterfall, or the order in which the money from a payment applies to the different parts of a loan such as  interest, principal, and fees. Some payment types—like principal only—will direct all funds into one or two areas; others will direct funds to all parts of a loan but in different orders. This article will explain how to set up payment types and configure the payment application for installment loans. To learn more about selecting payments types when logging and processing payments, visit our logging payments article. And to see how it works on line of credit accounts, check out Payment waterfall application – line of credit.

Configure payment types

Your tenant should automatically have a few default payment types that you can choose from when logging a payment. To view these options in LMS, navigate to Settings > Loan > Payments > Types within your company account. 

In addition to the default types, you can create your own. To do so,

1. Navigate to Settings > Loan > Payments > Types within your company account. As shown below, click 'Add' to create a new payment type. Here, you can determine the settings for your new payment type.
   
2. Give the payment type a name and select a status. By default, new payment types are set to ‘active,’ but you can change this with the 'Status' dropdown.
3. Choose the order that the payments will apply by using the ‘Payment Application’ selection area. This area includes a list of several default areas of the loan, as well as any escrow buckets you've created.
4. To specify the order of application, click the loan portion that you want the payment to apply to first and then click ‘>’ to add it to your chosen order. Repeat this process with the other loan portions in the order you want payments to apply to them.

If a payment is not fully applied using a particular payment type, the unapplied portion will apply to principal by default. For example, if you were to use a payment type that only applied to standard fees, but there were no outstanding fees on the loan, then the payment would apply to principal instead.

Finally, you can enter a description of the payment type in the description field. This description will be accessible when a payment is logged so that the payment application will be clear for you and your users.

The 'Example' portion of the page will give you an idea what this will look like on the ‘Payments’ tab inside a customer account. Once you have entered the information for the payment type, click 'Save'.

You also have the option to activate or inactivate payment types. This will determine if they are available when logging a payment. Inactivate a payment type by selecting the ‘X’ icon to the right of the payment type on the main page of Payments > Types; this is the off switch. An inactive payment type will show a checkmark instead of an ’X’. To reactivate a payment type, click the checkmark; this is the on switch.

Custom payment application

To enter specific amounts that apply to the different pieces of a payment, use a custom payment application. To access this tool, 

1. Navigate to Servicing > Payments inside of a specific loan. On this page, click 'Log Payment' to enter specific payment information. 
2. Select 'Custom' from the 'Type of Payment' dropdown. This will bring up some new fields underneath the amount field. You can now enter an amount that you want to pay towards each of the payment portions. You can even choose to apply amounts to individual fees or escrow buckets. If there are outstanding fees or escrow balances, you will see a checkbox (e.g. Apply to individual fees) below the appropriate field. Check the box and you will see a listing of fees or escrow buckets on the loan.
   
   
3. As you enter amounts into the fields provided, you will see totals for each section and the ‘Amount’ field will be updated with the total for all the sections. After you have entered the amounts that you want to apply, continue to log the payment.

Custom – user forced

The ‘Custom - User Forced’ payment type works exactly like ‘Custom Payments’ with one exception: it does not place any limits on the amount you apply to interest or other fees. This means that it will allow a user to force the allocation of the payment, even if the amount they are trying to pay is greater than the due components of the loan and causes the due component to go into the negative.

For example, let's say you have a loan with a due interest of $32.88 as of 09/28/2021, and it accrues interest at $4.11 per day. You are able to post a $100 payment and be able to specify that $100 goes toward the interest, which would bring the due interest to -$67.12. The loan would then continue accruing interest at $4.11 per day so on 10/14/2021 they should have accrued back to $2.75 of Due Interest.