If you want Mambu to automatically apply a penalty when a repayment is in arrears, you can define how the penalties should be calculated.
There are four different options you can choose from:
- No penalty - Won't charge penalties when a repayment is late
- Overdue Principal * # of Late Days * Penalty Rate - it's the most common method, where the penalty rate is applied on the principal due late amount and the number of late days
- (Overdue Principal + Overdue Interest) * # of Late Days * Penalty Rate - this method is similar to the previous one, but includes the overdue interest in the calculation.
- Outstanding Principal * # of Late Days * Penalty Rate. This method mirrors adding a penalty interest rate on top of the usual interest rate.
Arrears settings control how a loan's days in arrears should be calculated. These settings affect anything that is derived from a loan's days in arrears, such as penalties. For more info please see the Arrears Settings article.
Penalty Tolerance Period
In the Penalty Tolerance Period you can define a number of days before which no penalties will be applied to an account even if there is a late repayment.
Here, you can enter the rate you want to apply as penalty. You can either define a default, minimum or maximum rate or all of them.
For the two methodologies where the penalties are calculated on the Overdue Principal the Penalty rate has to be defined as a daily one*.
* If you're using a monthly penalty rate, for instance, you can simply divide your current rate by 30 to obtain the daily penalty rate.
When the penalties are calculated on the Outstanding principal, the Penalty rate frequency always follows the Interest rate frequency. (e.g. If the Interest Rate in a product is 30% per year, the Penalty rate can only be a yearly one for this product).
For all Penalty methodologies in Mambu, penalties are accrued on a daily basis.
The main difference is that for the methodologies where the penalties are calculated on the Overdue Principal there will be a daily Interest application transaction posted to the loan account, while for the Outstanding principal methodology the penalty is accrued daily and the accumulated amount will be applied to the account, along with the Interest accrued amount application based on the product settings (e.g. when the Interest accrued amount is applied either manually or automatically, when a repayment is posted etc).
- If penalties are enabled for a Product, the penalty rate can also be defined individually per loan account (When viewing the Loan Account details click “More” → “Edit Penalty Rate”).
- For Loan Products where the “Interest Rate Type” is “None” and Penalties are calculated on Outstanding Balance, the default Penalty Charge Frequency is % per year.
- Changing the penalties settings for an existing Product with active accounts will affect only new created accounts. For the existing ones penalties will keep being calculated with the methodology it was enabled when the accounts were created.
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