Loan Interest Charges
When a bill is generated for a loan, the interest charge is calculated using an algorithm. The base package loan interest charge algorithm type (LINT-SI) calculates simple interest based on:
- Unbilled principal (i.e., the payoff balance minus the current balance)
- The number of billing periods covered by the bill
- The interest rate
No interest on interest and no interest on past due amounts. Just like a classic home loan, the base package algorithm does not calculate interest on interest, nor does it calculate interest on past due amounts. However, your system may be set up to levy a late payment charge.
After the interest charge is calculated, the bill segment FT algorithm generates the financial transactions for the bill. The base package FT algorithm generates a financial transaction that adds the interest charge to the payoff balance. In other words, if the customer wanted to pay off the loan, they would owe the principal balance plus the interest charge.
For more information, refer to Billing For Loans And Interest Calculation.