This option is applicable to customers who have in present a high amount of money, and would like to use them to cover the loan balance, immediately.
This option will lead to a lower interest/cost for the client (as it is calculated to a lower principal balance) as well as to a lower monthly payment (as the loan term will remain unchanged).
Example: We will use a more realistic example, in order to show the calculations of interest and instalment amount (EMI).
The client has a loan of 10000 p on a 24 months term, granted on 01-01-2022.
First instalment was 01-02-2022, in equal amounts of 461.45p. The interest rate is 10% annually, calculated on a daily basis and applied on monthly due date.
Instalment number | Instalment date | Interest | Principal | Total | Loan balance remaining | Status |
|---|---|---|---|---|---|---|
1 | 1-Feb | 84.93 | 376.52 | 461.45 | 9623.48 | PAID |
2 | 1-Mar | 73.82 | 387.63 | 461.45 | 9235.86 | PAID |
3 | 1-Apr | 78.44 | 383.01 | 461.45 | 8852.85 | PAID |
4 | 1-May | 72.76 | 388.69 | 461.45 | 8464.16 | PAID |
5 | 1-Jun | 71.89 | 389.56 | 461.45 | 8074.60 | PAID |
6 | 1-Jul | 66.37 | 395.08 | 461.45 | 7679.52 | PAID |
7 | 1-Aug | 65.22 | 396.23 | 461.45 | 7283.29 | SCHEDULED |
8 | 1-Sep | 61.86 | 399.59 | 461.45 | 6883.70 | SCHEDULED |
9 | 1-Oct | 56.58 | 404.87 | 461.45 | 6478.83 | SCHEDULED |
10 | 1-Nov | 55.03 | 406.42 | 461.45 | 6072.41 | SCHEDULED |
…. |
|
| SCHEDULED | |||
24 | 1-Jan-2024 | 3.86 | 454.93 | 458.80 | 0 | SCHEDULED |
The total cost of the loan, from beginning to final repayment, is 1072.13 p.
On 13-Jul-22 the customer wishes to make a partial early repayment of his loan, in amount of 300p. He will chose the option to decrease the future instalment amounts. After processing the payment, the instalment plan will look like this:
Instalment number | Instalment date | Interest | Principal | Total | Loan balance remaining | Status |
|---|---|---|---|---|---|---|
1 | 1-Feb | 84.93 | 376.52 | 461.45 | 9623.48 | PAID |
2 | 1-Mar | 73.82 | 387.63 | 461.45 | 9235.86 | PAID |
3 | 1-Apr | 78.44 | 383.01 | 461.45 | 8852.85 | PAID |
4 | 1-May | 72.76 | 388.69 | 461.45 | 8464.16 | PAID |
5 | 1-Jun | 71.89 | 389.56 | 461.45 | 8074.60 | PAID |
6 | 1-Jul | 66.37 | 395.08 | 461.45 | 7679.52 | PAID |
13-Jul | 25.25 | 274.75 | 300.00 | 7404.77 | PAID | |
7 | 1-Aug | 38.55 | 406.16 | 444.71 | 6998.60 | SCHEDULED |
8 | 1-Sep | 59.44 | 385.27 | 444.71 | 6613.33 | SCHEDULED |
9 | 1-Oct | 54.36 | 390.35 | 444.71 | 6222.98 | SCHEDULED |
10 | 1-Nov | 52.85 | 391.86 | 444.71 | 5831.13 | SCHEDULED |
…. |
|
| SCHEDULED | |||
24 | 1-Jan-2024 | 3.53 | 415.06 | 418.58 | 0 | SCHEDULED |
The NEW total cost of the loan, from beginning to final repayment, is 1047.32 p, showing the savings that the client made from interest only.
The changes on the repayment plan are due to the new loan balance, after the repayment made by client in amount of 300p. This change in balance is what leads to :
a new monthly instalment
The new 444.71 instalment amount is calculated using:
the new outstanding loan balance after the repayment of 300p: 25.25 interest, and remaining for the loan principal.
the remaining number of instalment to be paid (24-6 = 18 payments remaining)
as well as new interest amount (compared to previous instalment):
The interest amount is calculated considering the 300p repayment on 13-Jul, as the interest is being accrued on a daily basis, using the loan balance.
The amount repaid is first covering the interest accrued until 13-07
The remaining amount will then be used to repay the loan principal/balance
The interest accrued between 13-07 and 1-Aug will be then posted on due date 1-Aug and expected to be paid.
Use these calculations to understand the way the repayment plan changes due to the repayment options chosen by client. The real amounts may differ due to system rounding.
Closed: - how to handle the interest rate when an immediate early repayment is processed? We have 2 options:
The one presented in the example:
The amount repaid is immediately used to repay the principal/loan balance
the interest accrued is not posted at the time of early repayment (thus is not repaid on 13-07) but the accrual continues on a daily basis until the next due date. when the accrued interest between 1-Jul and 1-Aug is posted and expected to be paid.
ACCEPTED OPTION :
The amount repaid is first covering the interest accrued until 13-07
The remaining amount will then be used to repay the loan principal/balance
The interest accrued between 13-07 and 1-Aug will be then posted on due date 1-Aug and expected to be paid.
Minimum amount : 1p - OPEN
Maximum amount : total loan outstanding balance + interest due. OPEN
Account source: Main account and Pockets
Number of partial prepayments - option 2 - possible: unlimited. OPEN
Fees for prepayment option 2: none
If the extra repayment is done on the monthly due date, the extra repayment will be shown as an additional transaction.
Out of scope:
loan closure scenario should not be used with this product feature.
allocation order in case of overdue accounts
Technical solution: Jan Görig (Unlicensed)
Testing:
Happy path: Top-up account with needed amount. Choose option 2 for repayment. Confirm. Check the values in the instalment plan and confirm they are correct.
Test amount higher than available on main account → error message on screen
Test amount higher than loan balance + accrued interest → error message on screen
Acceptance criteria:
No errors
Instalment plan shows the correct updates
The money is automatically processed to the loan balance of the client, giving the client a lower monthly repayment amount
Dependencies: TBD
