2.4 Business Components

This topic describes the information to configure the business components.

When a bank or financial institution lends money to an individual or entity, the borrower is required to repay the principal amount along with additional obligations. These obligations typically include interest on the borrowed amount, fees for processing the loan, taxes, penalties for delayed payments, and insurance premiums if applicable. Each of these elements contributes to the total repayment amount and plays a crucial role in structuring a loan or lease.

To manage these different financial elements efficiently, Oracle Retail Lending Servicing System defines them as Business Components. A Business Component represents each type of amount collected from the borrower throughout the loan or lease lifecycle—whether it is Principal, Interest, Fees, or Insurance.

The Business Component Definition screen allows banks to configure and maintain these components based on their applicability to different lending products, ensuring standardized processing and accurate financial management. Each component can be linked to a specific Loan or Lease product, ensuring flexibility in defining repayment structures, accrual methodologies, and financial reporting.

1. Principal - The Principal Amount refers to the actual loan amount disbursed to the customer, which forms the base on which interest and repayment calculations are performed.
2. Interest - Interest is the cost charged to the customer for borrowing funds. Different types of interest are supported:
   • Regular Interest - The standard interest charged as per the loan agreement.
   • Penal Interest - Additional interest applied on overdue amounts.
   Interest calculations are governed by predefined rules, such as interest rates, compounding methods, and accrual frequency.
3. Fees and Charges - Various fees and charges may be applicable throughout the loan lifecycle. These are managed using configurable component codes, such as,
   • Processing Fee - One-time fee charged at the time of loan processing.
   • Late Payment Fee - Fee levied when a payment is missed beyond the due date.
   • Prepayment Fees - Fee applicable when the loan is repaid before the scheduled term.
   These fees are system-configurable and can be applied based on the bank’s product policies.
4. Insurance - Insurance is an addition to a loan product that safeguards the lender, the borrower, or both from unexpected events. The insurance premium can either be included in the loan amount or paid separately. The insurance component can be associated with the loan product segment, where the details of premium collection events are established.

This topic contains the following subtopics:

• Create Business Component
  This topic describes the systematic procedure for creating the component using various preferences.
• View Business Component
  This topic describes the systematic instructions to view the list of configured components.