- 02 Dec 2024
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Early Repayment Charge Fee
- Updated On 02 Dec 2024
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The Early Repayment Charge (ERC) fee is applied to the account when an overpayment occurs. Each product can only incur one early repayment charge. The fee calculation Mambu Functions, which apply the logic described below to calculate the ERC based on the provided inputs. Detailed definitions and descriptions of the various properties sent to the function are available here: Loan Early Repayment Charge Fees. In cases where the ERC are calculated outside of Mambu, manual fees can be used for the fee posting.
The ERC fee can be also used to pay off operations. To have this fee type enabled please get in touch with your Mambu Customer Success Manager or contact us through Mambu Support.
Configuring an Early Repayment Charge fee
- To configure this fee for loan products, select Early Repayment Charge from the Fee Type dropdown list.
- Once the ERC type is selected, the function option will appear in the Functions field.
- Because different functions can be created for the same tenant, carefully choose the desired function. Only one function should be selected for fee calculations.
Example of ERC calculation using Mambu Functions
Suppose you want to charge a fee for each overpayment made during the loan's lifecycle. In that case, you need to deploy the function in your environment which contains the logic to calculate the fee.
Overpayment amount | ERC | |
---|---|---|
Year 1 (2023) | Any | 5% |
Year 2 (2024) | Any | 5% |
Year 3 (and onwards) | Any | 4% |
This loan has the following terms:
- Loan amount: 100000 GBP
- Repayments: Every month
- Repayment amount: 1000 GBP/month
- Disbursement date: 01/12/2023
- First repayment date: 01/01/2024
- Last repayment date: 01/01/2040
Given the current date of December 20, 2023, and an overpayment of 1500 GBP, Mambu sends all relevant information to its functions. The function set at the product level will receive this data, apply the business logic, and calculate the ERC fee amount.
In this scenario, since the repayment was made on December 20, 2023, and Mambu identifies this repayment as an overpayment (assuming no amount was due on the account at that time), Mambu passes this information to the function which calculates the fee as follows:
ERC = Ovp amount-(Ovp amount/(1+5%)) = 1500-(1500/(1+5%)) = 71.43 GBP
This formula can be customized based on the customer's needs.
The fee is applied to the account and deducted from the repayment. As a result, you will see two transactions with the following details logged on the account:
- A repayment transaction of 1500 GBP.
- A fee applied transaction of 71.43 GBP on your current installment.
At the repayment transaction details level, the amount of 1500 GBP is split as follows:
- Fee paid is 71.43 GBP.
- Principal paid is 1500 GBP - 71.43 GBP, equalling 1428.57 GBP.
This is a basic example of how you can use an early repayment charge fee on an account.
Early Repayment Charges using allowance parameters
The ERC Free Allowance Parameter becomes available in the Repayments Collection section at the product level after setting up an ERC fee.
Parameter | Description |
---|---|
Initial allowance | The allowance percentage defined within the loan product. |
Allowance at the moment of repayment | Calculated as Allowance available * Actual principal balance |
Allowance remaining | % = Allowance available * (1 - Allowance used / Allowance at the moment of repayment) Allowance remaining will always be stored as a percentage, since it depends on the principal balance at the moment of repayment. The allowance is not a fixed amount. Allowance is reset to x% where x% is the amount configured at the product level, at the beginning of each anniversary year from the time of the disbursement. |
Example of ERC calculation with allowance
Assuming that the calculated allowance at the moment of the overpayment is 1000 GBP (1% of Principal Balance) and the overpayment amount is 1500, the ERC will only be calculated for 500 GBP by applying the same formula:
ERC = Ovp amount-(Ovp amount/(1+5%)) = 500-(500/(1+5%)) = 23.81 GBP
Where Ovp amount is the amount that falls outside of the allowance amount.