Overpayments On Loans

You can determine whether you want to accept loan overpayments. Overpayments reduce the principal amount (the amount owed on the loan), which follows the philosophy adopted by a typical home loan.

When the payment is made, any overpayments are distributed according to the overpayment distribution algorithm defined for the customer class. Any customer classes for which you want to allow loan overpayments should use an overpayment distribution algorithm that keeps the overpayment on the loan SA.

When the payment transaction is frozen, the system checks to see if there is a credit amount on the loan SA's current balance. If a credit exists, the customer has made an overpayment and an adjustment is created to zero out the current balance and transfer the amount of the credit from the SA's short-term receivable to long-term receivable. The adjustment may appear on the customer's next bill to show the additional amount paid against the principal.

The algorithm that controls this adjustment to remove the credit on current balance is plugged in on the loan service agreement's SA type and is applied on the SA Type - Payment Freeze system event.

The third and fourth entries in the following table illustrate an overpayment (note, the first two financial transactions were described above).

In the third financial transaction illustrated above, the billed amount of the payment works essentially the same as that illustrated under Paying What Is Owed. If the Keep Overpayment on Loan SA algorithm is plugged in on the overpayment distribution event on the customer class, the overpayment amount is applied to the loan SA, creating a credit on the SA's current balance. The following explains how this algorithm works:

• If the account has an loan SA and there is an excess credit, the credit is applied to the loan SA (as long as this does not cause the loan SA to have a credit payoff balance).
• If there is not a loan SA to which the credit can be applied, the algorithm checks to see if there is an open excess credit SA for the account.
  • If so, the excess credit amount is applied to the excess credit SA.
  • If not, the algorithm creates an excess credit SA and applies the amount to this SA.

The fourth financial transaction illustrated above is created if the Create Adjustment to Remove SA's Credit algorithm is plugged in on the loan's SA type's payment freeze event. The following explains how this algorithm works:

• If the SA's current balance is less than zero, the algorithm creates a frozen adjustment that removes the credit by transferring the credit from the short-term receivable to the long-term receivable. This adjustment ID is captured on the pay segment so the adjustment can be canceled if the payment is later canceled. Note that the adjustment cancel reason used by the system in this case is specified on the Financial Transaction Options Feature Configuration using the Adjustment Cancel Reason For Payment Linked To Adjustment option type.
• The SA's current balance increases by the amount of the credit transfer. In other words, the customer thinks they owe 0 after the transfer.
• The SA's payoff balance doesn't change because the payoff balance is always the net of the short-term and long-term receivables. In other words, if the customer wanted to payoff their loan, they'd still owe 9,402.95.