Introduction
Principal and Interest (P&I) repayment ensures borrowers gradually repay both the loan principal and accrued interest. By selecting the appropriate compounding frequency, calculation method, and daily interest accrual approach, you can structure payments that best fit the loan terms and borrower agreements.
Navigating to This Section
Click the Gear icon in the top-right corner to open Settings.
Select Company Settings.
Use the left-hand navigation menu to expand Loan Setup/Origination.
Locate Repayment Methods.
Tip: If you cannot access this section, ensure you have the necessary permissions or contact your administrator.
Principal and Interest
Default Compounding Frequency
Frequency | Description |
Weekly | Interest compounds every week, spreading charges evenly over shorter periods. |
Monthly | Standard option where interest compounds monthly, aligning with most loan repayment schedules. |
Annually | Interest compounds once per year, typically used for long-term investments. |
Best Practice: Choose a compounding frequency that matches borrower expectations and regulatory requirements.
Calculation Method
Method | Description |
Standard | Splits the total payment into equal principal and interest portions based on loan terms. |
Alternative | Uses an effective interest rate per frequency to distribute interest more precisely. |
Note: The chosen calculation method directly affects total interest paid over the loan term.
Amortization Length vs Regular Payment
Setting | Description |
Stable Amortization Length | Keeps the original loan term fixed while adjusting payment amounts if changes occur mid-loan. |
Stable Regular Payment | Maintains a consistent payment amount while adjusting the amortization length for rate changes or prepayments. |
Best Practice: Consider stable payments for borrower convenience, but assess whether amortization adjustments may be required.
Daily Interest Accrual Method
Method | Description |
Prorated | Allocates interest proportionally based on the number of days in the period. |
Compounded | Recalculates interest for each period, increasing the amount owed if multiple rate or balance changes occur within a cycle. |
Tip: Prorated interest is useful for shorter loan periods, while compounding can lead to higher interest accrual over time.
Additional Settings
Setting | Description |
Precise Amortization | Locks in a fixed Principal and Interest (P&I) payment for each installment. |
Exclude Operating Company/Lender from Principal Allocation | Ensures principal repayments go directly to investors rather than the operating company. |
FAQs
What happens if I change the compounding frequency mid-loan?
Changing the frequency mid-loan may affect total interest costs and require recalculations. Consult with your servicing team before making adjustments.
Can I adjust amortization settings after loan origination?
No, amortization settings must be defined before loan funding to ensure accurate calculations.
Which calculation method should I choose?
The Standard method is recommended for most cases, but the Alternative method may suit loans requiring precise interest distribution.
Need Further Assistance?
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