Revolving Loans and Credit Cards

Revolving loans and Credit cards are lines of credit that allow multiple disbursements and repayments on the account. They are similar to overdrafts, except that they have an associated payment plan in which some amount of principal and interest may be paid.

The summary of transactions for revolving loan and credit card accounts is provided in a billing statement, which lists all the purchases, payments, and other debits and credits made to a revolving loan or credit card account within a billing cycle. This is a common standard for revolving loan and credit card accounts, where clients are issued an invoice or notified via email before the due date based on the billing statement at the end of each billing cycle.

Billing Cycles

Billing cycles refer to the length of time between the last billing statement closing date and the next.

To enable billing cycles on a product, you must select certain options in the Repayment Scheduling section of the Creating a new loan product form. If, after selecting the Repayment Amount, there is no field to mark Enable Billing Cycles, it means that the type of Revolving credit product does not support billing cycles.

Setting up billing cycles at product level

When setting up a new loan product, select the Revolving Credit product type from the dropdown and, in the Repayment Scheduling section:

1. Under Payment Interval Method, select Fixed Days of Month.
2. Under Monthly Repayment Days (mandatory field), add one or more days of the month when you want repayments to be made to your accounts (can be changed later at account level).
3. Under Repayment Amount, choose one of the following options:
   • Principal Payment with % of Outstanding Principal After Last Disbursement
   • Total Due Payment with % of Outstanding Principal Not Yet Due
4. Select the Enable Billing Cycles checkbox.
5. Under Start of Billing Cycle (mandatory field), enter the start date of the billing cycle.
6. Under Short Month Handling, the billing date is by default the last day of the month. You can choose to change it To First Day of Next Month.

Setting up billing cycles at account level

When creating a new loan account, in the Account Terms section of the form, the default values configured when setting up the loan product for Monthly Repayment Days and Start of Billing Cycle will appear. You can choose to change these dates at account level.

Interest Rates

Interest on Revolving loans and Credit cards is accrued on a daily basis, which allows you to charge your clients only for the days they used the loan amount.
For more information, see Interest calculation methods in loans.

Interest Calculation Methods

Currently Revolving loans and Credit cards support only the Declining Balance interest calculation method. This method reflects the actual cost of the loan, as the interest is calculated on the outstanding balance.

The client only pays interest on the actual amount they still owe and not on the total amount. In this case, as the client starts making repayments, the interest due keeps decreasing over the duration of the loan.

The interest can be calculated in two ways:

• Principal Only: The default option, which calculates the interest by simply multiplying the daily interest rate by the principal and then by the number of days that elapse between payments.
• Principal and Interest: Calculates the interest by multiplying the daily interest rate by the principal plus unpaid interest and then by the number of days that elapse between payments.

Accrued interest posting frequency

With this option, you can specify the moment when the accrued interest is applied on the account. On Revolving loans and Credit cards, only the On Repayment option is available, meaning that the interest will be applied in the account on the installment due date.

The start of interest accrual and late interest

Revolving loans and Credit cards without billing cycle functionality start accruing interest from the disbursement moment and by default they support late interest accrual.

Revolving loans and Credit cards with billing cycle functionality have an option to choose when to start the interest accrual—after the disbursement or after the due date. This configuration is closely related to late interest:

1. Principal Payment as % of Outstanding Principal after Last Disbursement:

• Start interest accrual after disbursement and by default late interest is enabled.
• Start interest accrual after due date and by default late interest is disabled.
  This option supports interest free period from the disbursement until the first due date.

2. Total Due Payment as % of Outstanding Principal Not Yet Due starts interest accrual by default after due date and late interest is disabled. This option supports interest free period from the disbursement moment until the first due date.

Late interest is the interest, which will be calculated in the event of a late loan payment and will be reflected on the next installment of Revolving loans and Credit cards.
It is the same interest, defined at account level, but the base of calculation is different:
Interest amount = (outstanding balance - principal due) x (interest rate) / days in years * days in month

Late interest amount = (outstanding balance) x (interest rate) / days in years * days in month

Interest Rate Source

Currently Revolving loans and Credit cards support only Fixed Interest Rate.

Days in Year

You can choose from three different ways to accrue interest:

• Actual 365/Fixed: Calculates the interest daily by counting the number of days in the calendar, using a fixed 365 year length.
• Actual/360: Also computes the interest daily by counting the number of days in the calendar, but uses a fixed 360 years length.
• 30E/360: Counts the days from the calendar, but also introduces some changes on the months with 31 and 28 days.

Change the interest rate

You can change the interest rate on Revolving loan or Credit card accounts within the product constraints, if any. You can also select the date from which the new interest rate should be applied under Entry Date.

Repayment Scheduling

Payment Interval Method

To set the payment interval method, in the Repayment Scheduling section of the Creating a new loan product form, choose from:

• Interval: The default option, which specifies that repayments should be made after certain periods of time, such as daily, weekly, monthly, or yearly.
• Fixed Days of Month: Option which specifies that repayments should always fall on specific days of the month, such as the 1st and the 15th of every month.

Short Month Handling

If you selected Fixed Days of Month as a payment interval method and entered the 29th, 30th, or 31st of the month, you can choose to move the installment when the month has fewer days.

The installment for that month can be due on either the Last Day of Month (such as the 28th), or on the First Day of the Next Month.

Rounding of Repayment Currency

For more information, see Rounding of Repayment Currency.

Repayment Amount

Choose from the following options:

1. Principal Payment (can be customized at product level):

• Flat Amount: Each installment will have a fixed amount of principal as due.
• % of Outstanding Principal: Each installment will set a percentage of the current account outstanding principal balance as due.
• % of Outstanding Principal after Last Disbursement: Each installment will be generated after each disbursement and will set a percentage of the current account outstanding principal balance plus the disbursed amount as due.

For the % of Outstanding Principal and % of Outstanding Principal after Last Disbursement options, you can also define:

• Repayment Amount ceiling: The maximum amount that can be collected.
• Repayment Amount floor: The minimum amount that can be collected as repayment and applies by default to Principal only.

Example

If the floor is set at EUR50 and 5% of the Outstanding Principal Amount calculated is less than the Repayment Floor Amount, Mambu will still expect a repayment of EUR50. The repayment will always be the floor amount or higher, up to the ceiling amount, if defined.

2. Total Due Payment (can be customized at product level):

• Flat Amount: Each installment will have a fixed amount of the total balance.
• % of Total Balance: Each installment will set a percentage of the total balance. The default payment allocation order on the schedule is: interest, fees, principal.

• % of Outstanding Principal Not Yet Due: Each installment will set a percentage of the outstanding balance which is not yet due. When using this option, interest and fees balances are included in the payment amount. This option was designed in the credit card context, when customers are communicating to their clients monthly repayments for their credit card accounts.

For the % of Total Balance and % of Outstanding Principal Not Yet Due options you can also define:

• Total Due Amount Floor: The minimum amount to be collected as repayment.
• Principal Amount Ceiling: Only the principal will be included in the ceiling amount.

Repayment Schedule

You can only preview the schedule of a revolving loan or credit card account after disbursement. The schedule before disbursement is not available.

On the account overview page, go to the Schedule tab and select the options you wish to see in the schedule table.

Preview due installments

• Amount Due
  
• Amount Paid
  
• Amount Expected
  
• Empty Repayments
  

Preview future installments

You can preview up to 24 future installments. To do that, in the Repayment Scheduling section of the Creating a new loan product form, select the Enable Preview Schedule checkbox and enter the number of installments you want to be able to preview.

Generate installments

Accounts with billing cycles

Installments are generated by the cron jobs, when the Billing Cycle End Date is reached.

Example

• The installments are generated on the End of Billing Cycle date, at the end of that day (EOD).
• The installments are generated on 06-02-2020 00:00:00, but the interest will not be applied yet.
• Interest will be applied on the Due Date (15-02-2020). The generated installment becomes due 10 days after the installment was generated.

Accounts without billing cycles

Installments are generated by the cron jobs, when the Due Date is reached.

Example

• The installments are generated on 15-02-2020 00:00:00, the Due Date.
• The interest is applied and the installment becomes due on the Due Date.

Backdated disbursements

All backdated installments must be generated until the current moment. If the installment of the last Billing Cycle is overdue, the next future installment must be generated.

Repayment Schedule Editing

When creating a new revolving loan or credit card product, you can control the extent to which loan schedules can be edited for loan accounts based on these loan products by selecting the desired Repayments Schedule Editing options in the Repayment Scheduling section.

If enabled for the loan product, editing the repayments schedule of loan accounts is available at the time the loan account is created, as well as in the following states of the loan account: Partial Application, Pending Approval, Active, and In Arrears.

For more information about how to edit a schedule, see Editing and customizing repayment schedules.

The following options can be selected:

1. Adjust Payment Dates

• The due dates for the installments are mandatory and must always be in an ascending order.
• The installments due dates must not be before the disbursement date.
• There can be multiple installments due on the same day.
• If the account is assigned to a line of credit, the last installment due date will be validated against the “Line of Credit valid until date”.
• The dates will be filled after you select Recalculate and/or Save Changes.

2. Adjust Number of Installments

• You can add more installments or delete previously added instalments keeping in mind that only custom installments that don’t have anything paid can be deleted.
• The installments will be filled after you select Recalculate and/or Save Changes.
• If the account doesn't have installments due or defined, the following message will be displayed under Schedule: No installments are due for this account. You will be allowed to add or delete installments, with the same constraints as mentioned in the .

On End of Day processes or when the disbursement is backdated:

• The due date and past-due installments will be populated.
• Installments will be added according to the Payment Interval Method selected.
• Installments will be marked as Grace if the installment is due or past-due but no principal or interest is allocated to it.

The revolving loan or the credit card is generating the manual installments and computing the interest by taking into consideration the Principal Balance, while the Declining Balance Dynamic Term Loan is generating the schedule and computing the interest by taking into consideration the Principal Expected.

The amount of interest on revolving loan or credit card accounts will be recomputed based on the transactions that are posted.

The table below shows the Repayment Schedule Editing options available for revolving loans or credit cards depending on the repayment option defined.

Edit payment in the schedule

You can change the Total Due or the Principal Due in the schedule at account level by editing the percent or the amount of payment under More > Edit Repayment Method Value.

Repayment Collection

Allows you to define how the repayments should be posted in the repayment schedule.

Payment Allocation Method

Horizontal Payments

When a repayment is entered for an account using Horizontal Payments, it is the actual repayment schedule that will determine what should be paid first based on the due dates. The amount entered will always be used to pay each installment, and only move to the next installment due when the previous installment has been completely paid.

Vertical Payments

Accounts using vertical payments will be paid based on the account balances of principal, interest, fees and penalties, following the allocation order defined in the product.

Payments are allocated based on the type of outstanding balance (such as interest or principal), regardless of the repayment schedule.

Pre-Payments Acceptance

Some organizations don’t allow prepayments for certain products. By default, for revolving loans and credit cards, Mambu will display by default the option Accept Pre-Payments. If you want to block the prepayments for a specific revolving loan or credit card product, click on the menu to select the Do Not Accept Pre-Payments option.

Apply Interest on Pre-Payment

On dynamic and revolving loans and credit card accounts, when a pre-payment is made it is usually desired to collect interest first, however for this to happen interest has to be applied before the pre-payment. By default Mambu is set to do this automatically. If this is not desired, the manual interest application can be selected. When Manual is selected a pre-payment will cause interest to be applied after the payment.

Repayment Allocation Order

In case of prepayments, partial repayments or payments of fees and penalties, the allocation order defined at the product level will determine what will be paid first.

If you want the principal to be paid first, then the interest, fees and finally penalties, then principal would be on top of the list and penalties on the bottom.

To move the items, just click, drag and then drop them at the right place.

Arrears Settings

In the Arrears Settings section of the form, select one of the two available calculation methods of setting accounts into arrears:

• Arrears Tolerance Period (no of days): You can set the number of days of tolerance. This allows loan repayments to be late while the account remains in the Active state. For more information, see Arrears Settings.

• Arrears Tolerance Day: You can set one specific day of the month on which the account will go into arrears. Simply put, it means that after this date, your payment is late.

Penalties Settings

Penalties are applied automatically when an installment is in arrears. The penalties are being computed based on the following calculation methods:

What penalties are available depends on the Repayment Amount option defined in the Repayment Scheduling section. To understand how they are linked, see the table below.

For more information about how penalties are defined and applied, see Loan Penalties Setup.

Internal Controls

For more information about how the internal controls are defined and used, see Internal Controls.

Product Fees

There are different types of fees that can be applied on loan accounts after being created or activated under each product. For more information, see Loan Fees Setup.

What fees are available depends on the Repayment Amount option defined in the Repayment Scheduling section. To understand how they are linked, see the table below.

Product links

For more information about how product links can be defined and used, see Linking Deposit and Loan Accounts.

Securities

For more information about how securities can be defined and used, see Securities Settings.

Taxes

For more information about how taxes can be defined and handled, see Value Added Taxes.

Currently on revolving loan or the credit card accounts, you can only use the Exclusive taxes which can be defined for the following repayment options.

Accounting rules

For more information, see Accounting Rules.