Loan Payment Sequence

Lending Lending Loan Payment Sequence

This document outlines the loan payment sequence logic within the Flex system, detailing how payments are applied to various loan types and the configuration options available to credit unions.

1. Overview of Payment Application Logic

The Flex system applies loan payments based on predefined sequences, which vary depending on the loan type.

1.1. Simple Interest Loans

For simple interest loans, payments are applied in the following order:

  • Late Fee
  • Interest
  • Principal

1.2. Non-Mortgage Bucket Amortized Interest Loans

For non-mortgage bucket amortized interest loans, payments are applied in this sequence:

  • Interest
  • Principal
  • Escrow
  • Late Fees

1.3. Mortgage Bucket Loans

For mortgage bucket loans, the payment sequence is primarily determined by the credit union’s configuration, with a specific rule for late fees:

  • Credit Union Defined: The credit union specifies the exact sequence within the Loan Type Configuration.
  • Interest Calculation Method: The Interest Calculation Method for these loans MUST be set to ‘M’ (Mortgage).
  • Late Fee Default: Regardless of the configured sequence, FLEX will always default the late fee as the last item in the payment sequence for Mortgage Bucket loans.

2. Configuring Loan Payment Sequences

Loan payment sequences are configured within the Edit Loan Type section of the Flex system.

2.1. Accessing Loan Type Configuration

To configure loan types:

  1. Navigate to the Edit Loan Type screen.
  2. Locate the Type field (e.g., ‘ML’ for Mortgage Loan).
  3. Ensure the Active Desc (e.g., ’15TM’, ’15TMOR’, ‘1ST MORTG’) is correctly set.

2.2. Key Configuration Sections

2.2.1. Interest Values

  • Interest Calc Method: This field is critical for Mortgage Bucket loans, which MUST be set to ‘M’ (Mortgage).
  • Payoff Using Simple Int Method: Yes/No
  • Insurance is Fee: Yes/No
  • Allow Zero Interest Rate: Yes/No
  • Accrue int After Charge Off: Yes/No
  • Include in Interest Accrual: Yes/No

2.2.2. Payment Values

  • Allow Partial Payment: Yes/No
  • Allow Principal Only Payments in Tran Entry: Yes/No
  • Allow Principal Only Payments in Mobicint: Yes/No
  • Apply Excess Payment To Partial: Yes/No
  • Pay Ahead Limit Days: Configurable (e.g., 30 days).
  • Payment Due (Day of Month): Configurable (e.g., 15th).
  • Min Days To Advance Bal Loans: Configurable (e.g., 25 days).
  • Allow Debits Thru Tran Entry: Yes/No
  • Include Late Fee In Due Date Adv: Yes/No

2.2.3. Amortization Payment Buckets

This section defines the priority of payment application for amortized loans.

  • Payment Priority 1: Interest
  • Payment Priority 2: Escrow
  • Payment Priority 3: Principal
  • Payment Priority 4: Late Fee

3. Credit Card Loan Payment Sequences

Credit card loans have specific default payment sequences.

3.1. Default Assignments

  • There are three default payment sequences assigned by type for credit cards.
  • The most common default is 2 (Interest Rate highest to lowest).

3.2. Configuration Location

  • Maintain Credit Card Loan Types can be found under Credit Card Configuration in the FLEX Main Menu.

3.3. Credit Card Loan Type Configuration Details

Within the Credit Card Loan Type Configuration (e.g., CC10315 screen):

  • Loan Type: (e.g., VP for VISA PLATINUM).
  • Payment Sequence Code: This field determines the payment application method. Pressing F2 while the cursor is on this field displays available options.

3.3.1. Payment Sequence Control Options (Press F2)

The following options are available for the Payment Sequence Control:

  1. By Interest Rate (lowest to highest): Payments are applied to loan categories with the lowest interest rate first.
  2. By Interest Rate (highest to lowest): Payments are applied to loan categories with the highest interest rate first. This is the most common default.
  3. Pro-Rated on Last Statement Balance: Payments are distributed proportionally across loan categories based on their last statement balances.

3.3.2. Pro-Rated Payment Example

Consider an account with two categories:

  • Purchase: $500.00 balance
  • Cash Advance: $200.00 balance
  • Total Loan Balance: $700.00

If a member makes a payment of $100:

  1. Purchase Category:
    • Ratio: $700.00 (Total Balance) / $500.00 (Purchase Balance) = 1.4
    • Applied Amount: $100 (Payment) / 1.4 = $71.43
  2. Cash Advance Category:
    • Ratio: $700.00 (Total Balance) / $200.00 (Cash Advance Balance) = 3.5
    • Applied Amount: $100 (Payment) / 3.5 = $28.57

4. History Retention

  • Open Accounts: 24 months
  • Closed Accounts: 24 months
  • Allow Purge After Closed: Yes/No