Loan Fees Setup
- Updated On 20 Nov 2020
- 11 Minutes To Read
Setting Up a New Fee
There are different types of fees that can be applied to both loan and deposit accounts after being created or activated under each product.
To set up a new fee:
- Go to the Product Fees section in the Loan Product setup screen (when creating a new loan product or editing an existing loan product).
- Click on Add Fee.
- Type the name of the Fee — this is the name that will be shown in different screens (when applying the fee to the account, when reporting, in the account statements, and so on).
- Select the type of the Fee — see more details about each fee type below.
- Define how the amount of the Fee will be calculated — either as a fixed amount or as a percentage (the available calculation options will differ depending on the Fee type).
- Select if the fee is Optional or Required (only available for certain fees).
- Select the specific GL accounts (only if accounting is enabled, and if applicable).
After fees are applied to an account, they will be paid according to the allocation order defined for that product.
Deactivating / Reactivating a Fee
If a fee is not applicable anymore, you can deactivate it by clicking on the small green square > saving your changes.
When the fee is deactivated, the small green square will turn from green to grey.
To reactivate a fee, follow the same procedure: click on the grey square, then save the changes.
Deleting a Fee
Fees can be deleted only if they haven't been used (have never been applied to any account). This option is only available for specific cases when a fee was created by mistake and should be used with care.
To delete a fee, click on the red Delete button, then save the changes.
If the fee has already been used and you try to delete it, Mambu will show you a warning message preventing you from doing so. In that case, you should deactivate the fee and it won't be applied to any other accounts created under that product.
Manual Fees can be applied at any point in time to a loan account — their trigger is manual, whenever the user needs to apply the fee. This type of fee applies when the event that triggers a fee application cannot be planned or predicted. For example: bounced cheques, lost cards, additional administration fees due to specific documents that had to be prepared, and so on.
For Manual Fees the available calculation options are:
Flat amount — can be set to a fixed amount if the fee amount is the same for all loans in this product or left empty, in which case the user can enter the applicable fee amount on a case by case basis.
% of Disbursement Amount — calculated as a % of the approved loan amount.
Deducted Disbursement Fees
As the name suggests, this type of fee will be deducted from the approved principal amount at disbursement, meaning the client receives less money as actual disbursement, but still has to repay the full loan amount by the end of the loan term. In other words, the fee will be effectively "paid" upfront.
For Deducted Disbursement fees the available calculation options are:
Flat amount — can be set to a fixed amount if the fee amount is the same for all loans in this product or left empty, in which case you can enter the applicable fee amount on a case by case basis (for example, in case the fee amount is calculated based on a very specific formula or logic that Mambu doesn't automatically replicate).
% of Disbursed Amount — calculated as a % of the approved loan amount.
Additionally, disbursement fees can be either Required or Optional — the required fees will be applied to all loans disbursed under this product, while the optional fees can be selected by the user to be applied or not at disbursement.
Loan amount = $1,000
Deducted Disbursement Fee = $100 => disbursed amount = $900
Manual fee as 10% of disbursed amount = $100 => ($900 + $100) 10% = $100
Capitalized Disbursement Fees
As the name suggests, this type of fee will be to the approved principal amount at disbursement, i.e.: the client receives the approved amount as actual disbursement, but has to repay a higher amount, including the loan fees, by the end of the loan term. Thus, the fees are effectively "paid" upfront but financed by the lender.
Capitalized Disbursement Fees are identical to the Deducted Disbursement fees in all other respects - same fee amount calculation options, as well as the "required / optional" feature, are available.
Loan amount = $1,000
Capitalized Fee = $100
Manual fee as 10% of disbursed amount = $110 => ($1,000 + $100) 10% = $110
As the name suggests, the Upfront Disbursement will be applied on the account as a “Fee” transaction, immediately after the account is disbursed and will be paid with one of the future payments. It can be selected when defining the Disbursement Details for a loan or when performing the disbursement.
Fixed Term Loans and Payment Plans will have the upfront fees automatically allocated on the first due installment and then can be changed by the users when editing the schedule. Dynamic Term and Tranched Loans will have the fee marked as due immediately.
Upfront Disbursement fees can’t be adjusted by themselves, but they will be automatically adjusted when the disbursement is undone.
Late Repayment Fees
Late Repayment Fees will be applied any time the client misses an installment and is set to "Late" status in the schedule.
For Late Repayment Fees the available calculation options are:
- Flat amount - can be set to a fixed amount if the fee amount is the same for all loans in this product; since this fee is applied to all payments in the schedule in advance, it can't be left empty and specified on a case by case basis;
- % of Disbursement Amount — calculated as a % of the approved loan amount
- % of Repayment Principal Amount — calculated as a % of the principal amount that was expected with the installment that was missed
Payment Due Fees
The specificity of these fees is that they are calculated in advance and added to the loan's repayment schedule, along with the interest and principal due with each installment.
For Payment Due Fees the available calculation options are:
- Flat amount — can be set to a fixed amount if the fee amount is the same for all loans in this product; since this fee is applied to all payments in the schedule in advance, it can't be left empty and specified on a case by case basis;
- Flat ($) / Num of Installments — when the loan is disbursed, the fee will be charged on each installment based on the formula: the flat amount of the payment due fee divided by the number of installments
- % of Disbursement Amount — calculated as a % of the approved loan amount
- % of Disbursement Amount / Num of Installments — when the loan is disbursed, the fee will be charged for each installment, calculated as % of the approved loan amount divided by number of installments
The Fee Appplication drop down will enable the posibility to mark the fees as Required or as Optional at Product Level.
The Payment Due fees marked as Optional can be linked to the account when:
- Creating the loan account, by clicking on the "+" icon and selecting the Payment Due fee from the drop-down menu from the Disbursement Details section.
- Disbursing the loan account by selecting the Payment Due fee from the drop down menu displayed on the Disbursement dialog.
The Payment Due Fees (Required or Optional) will be displayed in Disbursement Details section at loan account creation and in Disbursement Dialog at loan account disbursement.
These are fees which can be applied manually to the accounts at any point during the accounts' lifetime and with any given amount. By default this option is not checked when creating a new product, so if you will need to apply arbitrary fees to the accounts under that product you should select the Allow Arbitrary Fees checkbox.
The difference between a Manual and an Arbitrary Fee is is that a Manual Fee is pre-defined (meaning it has a pre-set name and amount that the user can't change when applying the fee). An arbitrary fee is completely flexible—no predefined name and/or amount, up to the user to input when applying such a fee onto the account.
Arbitrary fees should be used with caution. We recommend setting Manual Fees for more granular reporting and control.
Fee amortization is available for recognising up-front fees over the whole lifecycle of the loan. This option only becomes available if Accrual Accounting is selected in the Accounting Rules section.
There are 3 calculation methods (“Amortization Profiles”) available:
Sum-of-Year Digits — a declining balance amortization that uses the number of installments and the sum of number of installments to calculate the amortization rate. This method is available only for Deducted Fees.
Straight Line — A flat amortization method that equally divides the fee over the loan term. This method has a custom amortization frequency that can be defined for custom intervals or full term of the loan for manual fees (Straight Line Manual Fees Amortization Method.xlsx) and account installments due dates amortization frequency which is available for Manual, Deducted Disbursement and Capitalised Disbursement.
Effective Interest Rate — A declining balance amortization profile that uses the schedule periodic payment and interest rate to calculate the amortization rate. This method is available for all types of predefined Fees.
- When selecting EIR method you have the option to choose amortization frequency. To custom define the term select "Custom Interval" under "Amortization Frequency". You can define the frequency (in days, weeks, months, years) and over how many intervals the EIR is amortised. Mambu will apply the EIR calculation based on the Frequency and Period selected.
- For Capitalised Disbursement, Deducted Disbursement and Payment due fee types, there is an additional option for amortization frequency: "Account Installments Due Dates (Daily Booking)" and the calculation for this frequency is still based on the repayment frequency, however the accounting booking is performed daily.
For Manual, Deducted Disbursement, Capitalised Disbursement, Upfront Disbusement with Straight Line or Effective Interest Rate amortization method and amortization frequency Account Installments on Due Dates or Account Installments Due Dates (Daily Booking) it will be possible to choose if the amortization will end on the original account or if the amortization will continue on the Rescheduled or Refinanced account.
The newly added Fee Amortization upon Reschedule/Refinance drop-down menu will have as default value End Amortization on the Original Account and it will be possible to reschedule or refinance the account with any product, regardless of the product setup.
The default option can be changed with Continue the Amortization on the Rescheduled/Refinanced account. This option implies that the Reschedule or Refinance has to be done with the same product.
For detailed examples of these methods and calculation formulas please see Amortization_Profiles.xlsx
How it works:
When the account is disbursed, Mambu will book the fee as Deferred Fee Income (liability)
DR Portfolio Control
CR Deferred Fee Income
CR Deferred Taxes (if applicable)
Then on each installment due date, a part of the amount (determined by the amortization profile) will recognise the deferred amount as actual fee income, generating an additional Journal Entry as follows:
DR Deferred Fee Income / DR Deferred Taxes (if applicable)
CR Fee Income / CR Taxes Payable (if applicable)
If the loan is Paid Off (settled/ closed early), the remaining fees that are not yet amortised will be booked in accounting as income (same entry as above).
Accounting for Loan Fees
If accounting is enabled for the Loan Product, the Fee Setup screen allows you to link each fee to specific GL accounts for accounting purposes, as well as defining fee amortization profiles for some fees. These are explained in more detail in a separate article - please visit Fees Accounting.
If you have a question about how anything works or have come across something you haven't seen explained here, get in touch with our community of fellow users and Mambuvians where someone will lend a hand.
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