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 lines of credit. To learn more about selecting payments types when logging and processing payments, visit our logging payments article. And if you're using installment loans, check out Payment waterfall application – installment loans.

Line of credit components

Just like an installment loan, a line of credit account is made up of different parts including the principal balance they've borrowed, interest, and charges. On top of that, the account is divided into buckets and the CARD Act places requirements to the order of payments. There are two major considerations when configuring payment waterfall settings:

• Should the waterfall prioritize entire buckets, or components within the buckets? 
  When prioritizing buckets, the payment applies toward a single bucket until it's completely paid off, and then moves on to the next. Prioritizing components, the payment applies to one part of the balance (such as interest) and pays off that component in each bucket before moving on to the next component (like principal or fees.) This will make a larger difference if some components accrue interest and others don't.
• Should the waterfall change when the borrower only pays the minimum payment? 
  The CARD Act requires that when borrowers pay more than the minimum payment, that excess amount must go towards whatever balance has the highest interest rate. But if they only make the minimum payment (or even less than that), you're free to apply the payment to the loan in any order you see fit. For example, if the minimum payment is $50 and the borrower pays $75, then $50 can apply however you'd like, but $25 must go to the buckets with the highest interest rate. 

Configure payment types

To set up a line of credit payment type, you'll go to Settings > Line of Credit > Payments. There, you'll see a list of your current payment types. On the right, there are buttons to delete or edit them, as well as a switch that can toggle them active and inactive. At the top right of the page, you can click ‘Add’ to create a new payment type.

Near the top of the page are two settings:

• Name: This text field lets you name the payment type. We recommend a descriptive and distinct title, so agents won't have any trouble identifying it when they log a payment.
• Status: This toggle switch determines whether the payment type is available to be used when logging payments. 

Below, the rest of the page is divided into two sections— ‘Minimum Payment’ and ‘Excess’. The settings in both sections are identical.

At the top right, you'll see a checkbox asking if you want to ‘Prioritize Components over Buckets’. This determines whether you'll pay off entire buckets first, or entire components (like interest or fees). If left unchecked, the system will pay off entire buckets one at a time. Within each bucket, it'll pay off the components in the order you specify. 

Within each category, you can drag and drop the buckets or components to decide the specific order. The available categories are:

• Abated swipes
• Interest bearing past fees
• Interest bearing fees
• Interest charges
• Starting interest charges
• Interest free fees
• Interest fee past fees
• Swipes
• Other interest bearing

You can also use the ‘Most Expensive First’ switch and the system will rearrange them to pay off the part with the highest interest rate first. If any buckets have the same interest rate, then the system will compare these values in each bucket (in this order) to determine which is the most expensive:

1. Previous balance
2. Daily balance
3. Average daily balance
4. Adjusted balance

Once you've set your waterfalls for ‘Minimum Payment’ and ‘Excess’, click ‘Save’ in the top right of the page.

Linked account payment application

Some lenders may issue multiple lines of credit and/or loans with a single borrower. Depending on their product model, they may split off single swipe transactions or periodically roll bucket balances into individual installment loans. LoanPro's line of credit lets you link multiple child accounts to a single line of credit. This means that one line of credit can act as the main or parent account for multiple loans or lines of credit, or a combination of the two. When accounts are linked, you have the option to split payments between different accounts. 

To link an account, 

1. Navigate to Lines of Credit > choose an individual account > Account Settings > Account Linking. 
2. Here you can link to both loans and line of credit accounts. Click ‘Link Account’ in the ‘Lines of Credit’ tab to find and select a line of credit account you want to link to. 

Note you can only link to accounts that are not already linked to a different account. 

To split a payment, 

1. Click ‘Log’ in the upper right corner, then ‘Payment’ from the dropdown menu. The following window will appear. 

2. Check the ‘Split Payment’ box to access split payment type options. You must create payment split types if you would like to use this function. To do so, reach out to your LoanPro representative. Payment split type options must be added through the API. 

The options available to you if you choose to add payment split type options are chronological or due amounts.