Interest Bearing Loans
Overview document (not a LeasePak menu item)
Corresponding End of Period process: None
IBL overview document in progress.
IBL Features
Interest-Free Months
Both 'A' and 'B' Method IBLs
Introduced in LeasePak 6.6a, this feature adds a field when setting up an application for an interest bearing loan (IBL), when booking an IBL, and when rebooking an IBL that allows the user to specify an interest-free period in months, beginning at the commencement date, where the lessee will not be charged interest. After this interest-free period has passed, LeasePak will resume calculating interest using the fixed or floating rate plus add-on interest rate that is attached to the interest bearing loan.
LeasePak will allow a payment due day change be made to an interest bearing loan during the interest-free period. If the payment due day on the interest bearing loan is changed to a day that is outside of the interest-free period, an interest adjustment is made to that invoice by the number of days outside of this interest-free period. Otherwise, no interest adjustment is needed.
LeasePak will also allow a payment extension on an interest bearing loan, extending invoices that are due during the interest-free period. After a payment extension is done, any interest bearing loan invoices that are now due after the interest-free period has ended will have an interest adjustment to those invoices using the fixed or floating rate plus add-on interest rate that is on the interest bearing loan.
Automatic Interim Interest Calculation
Both 'A' and 'B' Method IBLs
This feature automatically calculates interim interest and saves it to Interim Rent (rap.pro_d) when an IBL application is saved. For each LeasePak portfolio, the administrator can choose whether or not to use this feature.
To use automatic interim interest calculation, turn on (check the box) the Auto App IBL Interim Rent switch in Portfolio [U0212]: New Lease Customizations.
Once the switch is set, when users save IBL applications in the portfolio, LeasePak will automatically calculate interim interest and save it to the Interim Rent field (rap.pro_d), as long as the following criteria are met:
- Commencement Date is entered
- Contract Date is entered
- Contract Date is not after the Commencement Date
- Payment Due Day is entered
- Payment Due Day matches the day portion of the Commencement Date
- Acquisition Cost is entered
- Accrual Method is entered
- For fixed rate IBLs, the Fixed Rate is entered
- For floating rate IBLs, the Float Index is entered
LeasePak calculates the amount of interim rent using the rate (fixed or floating) information entered in the application. Interim interest is calculated for the time period starting one day after the Contract Date and ending on the Commencement Date, using the number of days appropriate to the IBL accrual method. For example, if an RAXE application has a Contract Date of July 1 and a Commencement Date of August 21, using the 30/360 counting method, LeasePak would calculate interim interest for 50 days (July 2 through August 1 counting as 30 days, plus 20 more to August 21).
NOTE: Interest bearing loan *AF* accrual method supports all IDCs and IDRs in Enhanced IDC/IDR module.
Balloon Payment Residual
Both 'A' and 'B' Method IBLs
This feature allows the user to book a balloon payment into the Residual field of an IBL.
Use New Lease [U0101]: Add Asset or Application [U08]: Assets to book a balloon payment into the Residual field. To make corrections after booking, use Change Asset [U0120]: Adjust Original Cost, Payment Reschedule [U0104], or Rebook [U0116].
At time of payoff (or for payoff quotes), the Base Payoff is set to the balloon payment residual amount. The difference between the principal outstanding and the balloon payment amount determines the gain or loss on payoff. If the principal outstanding is greater than the balloon payment residual, the difference goes to gain. If the principal outstanding is less than the balloon payment residual, the difference goes to loss.
Effective Date After Maturity
Both 'A' and 'B' Method IBLs
This feature allows the user, if needed, to specify a payment or payoff effective date any number of months after the maturity date of the IBL, as long as the IBL is in 'NMAT' (normal matured) status and the Capitalize Interst switch on the IBL is set to 'N'.
This feature applies to Payments [U0102]: Payments, Cash Control [U0126], Batch Payments [U0305], Batch Payments (EOP) [U0415], Payoff [U0103]: Payoff, and Batch Payoff [U0129].
Interest Accrual After Maturity
'B' Method IBLs Only
Vehicle Finance users: This feature does not work in conjunction with the Vehicle Finance module.
This feature enables 'B' method IBLs to continue to accrue interest on unpaid principal after maturity.
Asset-Level Payoff/Termination OnlyRequirements
An IBL must meet the following requirements in order for LeasePak to continue to accrue interest after maturity:
- Be a 'B' method IBL (accrual methods _AF_, _AX_, _IF_, and _IX_ only).
- Be in 'NMAT' normal matured status.
- Have an unpaid, outstanding principal balance.
- Not have frequency 'SKIP' or 'ADV_' as the last stream in the payment schedule.
- Not have a taxable asset (LeasePak will strictly enforce this starting version 6.0a).
Process Overview
- When a 'B' method IBL with an unpaid, outstanding principal balance reaches maturity (status 'NMAT'), LeasePak continues to accrue interest using the same cycle as when the lease was active, so long as the IBL does not have a payment frequency of 'SKIP' or 'ADV_' as its final payment stream and does not have a taxable asset.
- LeasePak does not create any new invoices after maturity; instead, each subsequent accrual updates the interest billed (but not the invoice due date) on the final invoice.
- Because the due date on the final invoice does not change, LeasePak continues to use this date for delinquency calculations and reporting.
- Regardless of how the Portfolio [U0212]: Miscellaneous Customizations switch Prorate Inc IDC/IDR and Prorate Depreciation is set, LeasePak does not prorate interest accrued after maturity.
Accruals
With each accrual cycle, LeasePak accrues interest on the IBL according to the accrual method, deferral setup, form code, and other parameters governing the loan. LeasePak does not create any new invoices; instead, it continues to update the interest billed on the final invoice. While the accrued-to date advances with each cycle, the due date of the final invoice remains the same. For example:
- A loan with an arrears accrual method and a monthly payment schedule has a maturity date of 2/15/ and an accrual deferral days of 0.
- On 1/15/, LeasePak accrues interest for the period of 1/16/ to 2/15/, advances the accrued-to date to 2/15/, and creates a final invoice with a due date of 2/15/. At this point the loan matures, moving into an 'NMAT' status.
- As long as the outstanding principal balance of the loan remains unpaid, on 2/15/ LeasePak accrues interest for the period of 2/16/ to 3/15/, advances the accrued-to date to 3/15/, and places the interest on the 2/15/ invoice. The 2/15/ invoice remains with its original due date, but now includes 2 months of interest.
Accrual Reversals
Once LeasePak has started to accrue interest on an IBL after maturity, you cannot reverse accruals if you have performed either of the following:
- A partial interest payment on the final invoice where the interest paid is greater that a single month's interest accrued.
- A payment on the final invoice where the payment effective date is greater than the final invoice due date.
Payment Effective Dates
Using the sample loan from above, the following illustrate when and how LeasePak calculates partial interest based on the payment effective date of a mature (status 'NMAT') loan:
- Scenario 1: on 1/15/, LeasePak accrues the final invoice, due date 2/15/. You make a payment with an effective date of 1/25/. LeasePak recalculates the interest, using a partial period of 1/16/ to 1/25/.
- Scenario 2: on on 1/15/, LeasePak accrues the final invoice, due date 2/15/. You make a payment with an effective date of 2/25/, a date after the current accrued-to date. LeasePak does not calculate interest for the partial period of 2/16/ to 2/25/.
- Scenario 3: on 2/15/, LeasePak accrues another month's interest, advances the accrued-to date to 3/15/, and adds the interest to the final invoice, still due date 2/15/. You make a payment with an effective date of 2/25/. LeasePak recalculates the interest, using a partial period of 2/16/ to 2/25/.
- Scenario 4: on 2/15/, LeasePak accrues another month's interest, advances the accrued-to date to 3/15/, and adds the
- interest to the final invoice, still due date 2/15/. You make a payment with an effective date of 3/25/, a date after the current accrued-to date. Again, LeasePak does not calculate interest for the partial period of 3/16/ to 3/25/.
These scenarios illustrate that after a loan's maturity, whether or not LeasePak calculates partial interest based on a payment effective date depends on whether or not LeasePak has accrued interest for the period in which the payment effective date falls. However, during payoff or termination, LeasePak will assess any partial interest due as part of the payoff/termination amount (see the Payoffs and Terminations section below).
Payment Extensions
If you perform a Payment Extension [U0107] on a mature loan, LeasePak moves the final invoice due date out by the number of months extended, along with any after-maturity interest on the invoice, but without performing any additional accruals at the time of the extension. For example, LeasePak has accrued on 2/15/ and 3/15/ interest for the final invoice with the due date 2/15/. The invoice now includes 3 months of interest. If on 3/25/ you extend the loan payments by one month, the final invoice due date becomes 3/15/. LeasePak moves the invoice one month without performing additional accruals or changing the accrued dates of the interest already accrued. The invoice still includes 3 months of interest, but now with two accrued prior to the new invoice due date and one accrued after.
If you reverse the payment extension, LeasePak resets the invoice due date, again leaving the interest accrued dates and amounts in place.
Preauthorized Payments (PAP/ACH)
For loans after maturity, LeasePak still uses current behavior--that is, the invoice due date is still the criteria for when to make a PAP/ACH payment. But when LeasePak creates the batch payment file, it uses the accrued-to date as the payment effective date. Using the sample loan from above (without the payment extension), if LeasePak has accrued interest through 3/15/, the payment effective date is 3/15/, not 2/15/.
Suspended Earnings
If LeasePak has already accrued interest on the loan after maturity, and you move the loan from an 'NMAT' status to a suspended status using Suspended Earnings [U0115], LeasePak reverses the interest back to the maturity date, but does not move the reversed interest to Suspended Earnings general ledger accounts. LeasePak stops the loan at its maturity date for the duration of the suspension. If you move the loan back to an 'NMAT' status, however, LeasePak re-accrues the previously reversed interest, as well as accruing any additional interest that would have otherwise accrued during the suspended period.
Payoffs and Terminations
Lease-Level Payoff/Termination Only
'A' method IBLs: LeasePak allows you to set the payoff/termination effective date after the maturity date, calculating any additional interest owed based on the effective date.
For the payoff/termination amount, LeasePak calculates any additional interest owed based on the payoff/termination effective date. If you reverse the payoff or termination at a later date, LeasePak accrues any interest that would have otherwise accrued during the period in which the loan was paid off or terminated.
LeasePak reduces the remaining unamortized IDC, IDC1, IDC2, IDR1, IDR2, IDR3, and IDR4 amounts whenever an asset payoff or an asset termination is processed. The unamortized amounts that have been reduced when an asset payoff reversal or an asset termination reversal is processed. If the asset’s percent of schedule is equal to 50 percent, the amount that is reduced will be calculated as 50 percent of the remaining unamortized amounts for IDC, IDC1, IDC2, IDR1, IDR2, IDR3, and IDR4. These amounts will be cleared to their respective amortized general ledger accounts and not use the Clearing general ledger account. The general ledger accounting for an asset termination on an interest bearing loan will be the same as if the entire interest bearing loan was paid off or terminated. For unamortized IDC/IDR amounts asset payoff or termination general ledger account see General Ledger Accountin: Asset Payoff/Termination.
Use of Contract End Date for Last Month Accruals
Accrual [U0301]
For the last accrual, LeasePak will accrue up to the contract end date and not follow the regular monthly cycle if the Contract End Date field is not set. If the portfolio option Accrue IBL Interest after Maturity (Y/N) is set to Y, LeasePak will catch up on the next accrual cycle. All of the examples below assume using an actual day IBL accrual method..
Example 1:
Last Accrued-To Date = 10/1/2006, Contract End Date = 9/20/2006
For the last accrual, LeasePak will calculate interest from 9/2/2006 to 9/20/2006 and not the regular accrual from 9/2/2006 to 10/1/2006, even though the accrued-to date is still set to 10/1/2006.
If the portfolio option Accrue IBL Interest after Maturity (Y/N) is set to Y, and the next accrual cycle starts, LeasePak will catch up and calculate interest from 9/21/2006 to 11/1/2006.
Example 2:
Last Accrued-To Date = 10/1/2006, Contract End Date = 10/20/2006
For the last accrual, LeasePak will calculate interest from 9/2/2006 to 10/20/2006 and not the regular accrual from 9/2/2006 to 10/1/2006, even though the accrued-to date is still set to 10/1/2006.
If the portfolio option Accrue IBL Interest after Maturity (Y/N) is set to Y, and the next accrual cycle starts, LeasePak will calculate interest from 10/21/2006 to 11/1/2006, since the 10/2/2006 to 10/20/2006 interest has already accrued in a previous cycle.
If an IBL matures early (for example, there is a large principal pay down) and has not matured according to the payment schedule, the contract end date will not have any impact on interest calculations and the IBL will follow the regular monthly accrual schedule.
Example:
Last Accrued-To Date = 10/1/2006, Contract End Date = 9/20/2006
There is huge principal writedown; all the outstanding principal is invoiced on 8/1/2006. The 8/1/2006 interest calculation is still from 7/2/2006 to 8/1/2006 and will not be calculated from 7/2/2006 to 9/20/2006.
If the portfolio option Accrue IBL Interest after Maturity (Y/N) is set to Y and the next accrual cycle starts, LeasePak will still use the monthly accrual cycle with the actual date and disregard the contract end date in subsequent interest calculations.
Payment [U0102]
If the Form Code on the IBL is such that the default payment effective date is set for the invoice due date, the default payment effective date for the last invoice will be set to the contract end date unless the last payment effective date is beyond the contract end date, not the usual invoice due date.
Cash Control [U0126 ], Batch Payments[U0305/U0415]
Interest calculation on the last invoice is the same as for the Payments [U0102] interactive payment if the payment effective date is not input and the form code uses the invoice due date as the payment effective date.
Payoff Quote [U0213]
If the quote is a lease level Payoff/Termination quote, the default payoff effective date will be the latest of either the last payment effective date or the contract end date when the lease or IBL has matured.
LeasePak Documentation Suite
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