7.8.1.1 Amortization of Payment Schedules

By specifying that your payment schedules have to be amortized over the period of repayment, you indicate that all the repayments should be in Equated Installments. These repayment schedules are drawn up by taking the Principal and the Main Component. The Main component is the one you defined for display in the Contract Details screen.

If you specify amortized schedules, schedules are set in Equated Installments according to the frequency you have defined.

Note:

• If a loan is to be amortized, it should have fixed type of interest and bearing interest payment method.
• Multiple Pre-EMI schedule for amortization contracts are applicable. Pre-EMI is applicable only main interest component. Only after defining pre-EMI schedule, amortization schedule can be defined.

Capitalization

You can capitalize the interest payment on a loan by:

• Specifying the type of schedule (through the Product Preferences screen). The loan inherits this from the product.
• Specifying the frequency for the capitalization through the Product Default Schedules screen. The frequency can be changed for the loan.

If the repayments of principal or interest on a loan are not made on a particular schedule date, they are capitalized for the next schedule. The outstanding interest is added to the outstanding principal on the schedule date and this becomes the principal for the next schedule. If a partial payment has been made, the unpaid amount is capitalized (the unpaid interest is added to the unpaid principal and this becomes the principal for the next schedule).

Example

You have specified that the interest should be capitalized for Ms Yvonne Cousteau’s loan of USD 20,000 and indicated the frequency as quarterly. The first schedule date is 30 June 1998. On this date, the outstanding principal on Ms Cousteau’s loan is USD 20,000 and the outstanding interest, at 20%, is USD 986 for the first three months.

Since it is to be capitalized, this is added to the principal and USD 20,986 becomes the principal on which the interest is calculated during the next quarter.

Note:

Capitalization is done only for the ‘main’ interest, and only, if it is a fixed interest of the bearing type.

Normal

If you have specified normal type of schedules, you can define your own schedules for loans involving the product.

A schedule date:

• Should be later than, or the same as, the Value Date.
• Can have only one schedule for a component for a date.
• Cannot be beyond the Maturity Date.