Payment Methods for Declining Balance Equal Installments Loans
  • 17 Jan 2022
  • 2 Minutes To Read
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Payment Methods for Declining Balance Equal Installments Loans

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For both dynamic and fixed term loans you can chose an interest calculation method based on a declining balance with the borrower paying the loan down in equal installments. This type of loan allows a few different payment methods, which will have an impact on the payment schedule.

You can find these payment methods in the Repayment Scheduling section of the Creating a new loan product form.

Standard payments

Please Note

This payment method is available for both Fixed and Dynamic Term loan products.

A standard payment method simply divides the total amount due (including interest) by the number of installments to be made to pay down the loan. If it is not possible to divide cleanly and rounding has been enabled for this product, the last payment may be slightly smaller or larger than the previous installments by a few cents.

Example

dbei loan fixed standard payments with rounding

When rounding has not been enabled for the product and the principal cannot be cleanly divided, you will receive a warning, giving you the option of changing the amount or the number of installments to ensure the collection of the entire amount.

dbei loan fixed standard payments with no rounding warning

Balloon Payments

Please Note

This payment method is available for both Fixed and Dynamic Term loan products.

Balloon payments allows you to offer borrowers a fixed repayment amount each month with the balance of the loan to be paid off in the final installment - which could be a lot bigger. These kinds of loans are typically targeted at businesses as a large final payment to settle the loan may be beyond the reach of a normal consumer.

When you create a loan account based on this product you will be able to set the monthly payment amount and Mambu will calculate the schedule. For dynamic loans, the schedule, including the amount of the final payment will be recalculated based on any overpayments made by the borrower.

Examples


Example showing balloon payment making interest-only payments and settling the whole loan with a large lump sum at the end.


Example showing balloon payment schedule paying down interest and some of the principle with the final payment being around half of what was initially lent to the client.

Payment Plan

Please Note
This method of payment is only available for Fixed Term loan products.

There are cases in which organizations may want to offer accounts with a defined payment plan, meaning that they would specify a periodic payment for a specific number of installments with rates being able to rise or fall with subsequent installments.

Example

For example, you can change the interest rate throughout the life of the loan.

  • You can reduce the interest rate by 1.5% each year.
  • You can have 10% interest rate for the first three months of the loan, and after this period decrease it to 8% and continue with this rate until the loan reaches maturity.

Product definition

The Payment Plan can be configured only for Fixed Term Loans with the Declining Balance (Equal Installments) interest calculation method.

Account definition

In the image below we have the loan account definition with two payment amounts, depending on the number of installments:

  • USD200: from 1 to 12 installments
  • USD80: from 13 to 15 installments

The interest rate is computed based on the Internal Rate of Return (IRR) formula.

Payment Plan account terms at Loan Account Creation

Account schedule

In the image below we have illustrated the schedule for the loan account defined in the example above.
Payment Plan Schedule with 2 tiers


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