Payment Plan for Fixed Term Loans
- 12 Jun 2025
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Payment Plan for Fixed Term Loans
- Updated On 12 Jun 2025
- 1 Minute To Read
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Article summary
Organizations may offer loans with a defined payment plan, specifying periodic payments over a set number of installments. When selecting the Payment Plan option in the Repayment Scheduling section, borrowers can adjust the interest rate during the loan's term. For instance, the interest rate can be reduced by 1.5% each year, starting at 10% for the first three months, then decreasing to 8% until the loan matures. The loan account can be defined with varying payment amounts, such as $200 for the first 12 installments and $80 for the 13th to 15th installments. The interest rate is calculated based on a specific formula. Additionally, a schedule for the loan account illustrates these payment amounts and the corresponding interest rates, providing a clear overview of the repayment structure throughout the loan's duration.
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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.
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.
Account schedule
In the below image we have illustrated the schedule for the Loan Account defined in the example above.
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