Payment Plan for Fixed Term Loans
  • 26 Oct 2021
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Payment Plan for Fixed Term Loans

  • Dark
  • PDF

Article Summary

There are cases in which organizations may want to offer loans with a defined payment plan, meaning that they would specify a periodic payment for a specific number of installments.

When you choose Payment Plan as a method of payment in the Repayment Scheduling section of the Creating a new loan product form, you can change the interest rate throughout the life of the loan. For example:

  • 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

Please Note
The Payment Plan can be configured only for Fixed Term Loans with a Declining Balance Equal Installments interest calculation method.

Payment Plan option under Repayment Scheduling section

Account definition

In the below image we have illustrated the loan account definition with two payment amounts for a specific number of installments:

  • USD200 for the first 12 installments
  • USD80 for the 13th to the 15th installment

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 below image we have illustrated the schedule for the Loan Account defined in the example above.
Payment Plan Schedule with 2 tiers

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