This section details how to configure loan products using the Variable Charges interest calculation method. This method allows for highly customized fee and interest structures.

Loan Product Setup

• Before setting up the loan product, do the setups for the ledgers and the events .
• Path: Setups > Loan Related > Loan Products > Add a new loan product
• When creating the new loan product, ensure the Interest Calculation Method is set to "variable charges interest calculation method."
• Remember to link the users to this product after creation.

Setting Up Variable Charges

After creating the loan product, highlight the loan product and click on the "variable charges" button. Here, you will define the specific charges.

Order of Calculation:

The system calculates variable charges based on different base amounts, in the following order of precedence:

1. VARIABLE_CHARGES_CALCULATED_ON_INSTALMENT_AMOUNT_PRINCIPLE
2. VARIABLE_CHARGES_CALCULATED_ON_INSTALMENT_AMOUNT_DUE
3. VARIABLE_CHARGES_CALCULATED_ON_INSTALMENT_AMOUNT_AGREED
4. VARIABLE_CHARGES_CALCULATED_ON_OUTSTANDING_AMOUNT
5. VARIABLE_CHARGES_CALCULATED_ON_LOAN_AMOUNT
6. VARIABLE_CHARGES_CALCULATED_ON_PRINCIPLE_DEBT
7. VARIABLE_CHARGES_CALCULATED_ON_LOAN_TOTAL

Once-Off Fees

These fees are charged once per loan.

• Initiation Fee:
  • x per y, calculated on loan amount, not included in principal debt.
  • Example: 165.00 per 1000.00
  • X = initial charge
  • Y = On Increment Charge
  • If Charge Calculation Method = ‘x amount per y amount’
  • Calculated On = Loan Amount (Capital)
  • Charge Frequency = Once Off
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
• Levy Fee: % on loan amount , included in principal debt.
  • Charge Frequency = Once Off
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Percentage
  • Select the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
  • Initial Charge Value = 5.00
  • Example: 5% on 1000.00 = 0.05 X 1000.00 = 50.00
• Origination Fee: % on loan amount, included in principal debt.
  • Charge Frequency = Once Off
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Percentage
  • Select the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
  • Initial Charge Value = 6.00
  • Example: 6% on 1000.00 = 0.06 X 1000.00 = 60.00
• Credit Bureau Fee: % on loan amount, included in principal debt.
  • Charge Frequency = Once Off
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Percentage
  • Select the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
  • Initial Charge Value = 7.00
  • Example: 7% on 1000.00: 0.07 X 1000.00 = 70.00
• Insurance Fee: % on loan amount, not included in principal debt.
  • Charge Frequency = Once Off
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Percentage
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Insurance”
  • Initial Charge Value = 8.00
  • Example: 8% on 1000.00: 0.08 X 1000.00 = 80.00
• Admin Fee: Fixed amount per loan , included in principal debt.
  • Charge Frequency = Once Off
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Fixed
  • For installment level use "Instalment Outstanding Amount Agreed."
  • Select the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
  • Initial Charge Value = 525.00
  • Example: fixed amount of 525 per loan: 525.00

Once-Off Interest

These are interest charges applied once per loan.

• Interim Interest 1:
  • Interim Interest: % on loan amount, for number of periods, included in principal debt.
  • Charge Frequency = Interim Period
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Percentage
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Interest”
  • Initial Charge Value = 9.00
  • Interim Interest Period = 1
  • Example: 9% for 1 period on 1000.00: 9% X 1000.00 X 1 = 90.00
• Interim Interest 2:
  • Interim Interest: % on principal debt , for number of days, included in principal debt.
  • Charge Frequency = Interim Period
  • Calculated On = Principal Debt 
  • Charge Calculation Method = Interest Simple Monthly
  • Select the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute "Variable Charges Interest"
  • Initial Charge Value = 5.9178
  • Interim Interest Period = 1 
  • Example: 3% for 60 days: 5.9178% X 610 = 36.10
• Flat Rate Interest:
  • Flat Rate Interest: % on principal debt, once-off, not included in principal debt.
  • Charge Frequency = Once Off 
  • Calculated On = Principal Debt 
  • Charge Calculation Method = Percentage 
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute "Variable Charges Interest"
  • Initial Charge Value = 30.00
  • Example: 30%, loan amount = 2000, charges = 20.6 + 4: 30% X (2000+20.60+4) = 607.38

Monthly Fees

These fees are charged on a monthly basis.

• Admin Fee:
  • Admin Fee: % on Loan Amount, Per calendar month, not included in principal debt.
  • Charge Frequency = Calendar Monthly
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Percentage 
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
  • Initial Charge Value = 2.00 
  • Example: 2% over 3 months on 1000.00: 2% X 1000.00 X 3 = 60.00
• Service Fee:
  • Service Fee: Fixed amount, per calendar month , not included in principal debt.
  • Charge Frequency = Calendar Monthly
  • Calculated On = Loan Amount (Capital)
  • Charge Calculation Method = Fixed
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
  • Initial Charge Value = 50.00
  • Example: 50.00 per month for 3 months: 50.00 X 3 = 150.00
• Collection Fee:
  • Collection Fee: Simple Interest  % monthly on principal debt, Per installment, not included in principal debt.
  • Charge Frequency = Monthly Instalments 
  • Calculated On = Principal Debt
  • Charge Calculation Method = Interest Simple Monthly
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute “Variable Charges Fee”
  • Initial Charge Value =  2.90
  • Principal debt example calculation: loan amount plus charges: 1000 + 50 + 60 + 70 + 90 = 1270
  • Example: 2.9% for 3 monthly instalments: 2.9% X (1270) X 3 = 110.49

Monthly Interest

These are interest charges applied on a monthly basis.

• Simple Interest per month :
  • Interest: Simple interest, % per month, on principal debt, per installment, not included in principal debt.
  • Charge Frequency = Monthly Instalments 
  • Calculated On = Principal Debt
  • Charge Calculation Method = Interest Simple Monthly
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute "Variable Charges Interest"
  • Initial Charge Value = 22.5
  • Example: 22.5% over 3 months on 1525.00: 22.5% X (1000 + 525) X 3= 1029.38
• Compound Interest per month :
  • Loan Interest: Compound interest, % per month, on principal debt, per installment, not included in principal debt.
  • PMT(Rate,NoInstalments,PrincipalDebt,EndBal,0)
  • Charge Frequency = Monthly Instalments 
  • Calculated On = Principal Debt
  • Charge Calculation Method = Interest Compound Monthly
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute "Variable Charges Interest"
  • Initial Charge Value = 3.00
  • Example: 3% over 6 months on 646.10: PMT(3%,6,646.10,0,0) = 119.27
  • Interest Amount Calculation: Loan Total - Principal Debt = (119.27 X 6) - 646.10 = 69.52
• Pro-rata monthly interest :
  • Charge Frequency = Once off 
  • Calculated On = Principal Debt
  • Charge Calculation Method = Interest Simple Daily
  • Unselect the "Included in Principal Debt" checkbox
  • Financial Event = Select an event with an attribute "Variable Charges Interest"
  • Initial Charge Value = 30.00
  • Example: 30% pro-rata
  • Daily Interest = Interest Rate * 12 / 365

Default Fees and Interest

These charges apply when a loan goes into default.

• Penalty Interest :
  • Penalty Interest: Simple % daily on installment amount, per installment, not included in principal debt.
  • In Default Charge: selected
  • In default maximum charge periods = 3
  • In default calculation date: Instalment agreed date
  • Charge calculation method =  Interest simple daily
  • Calculated on = Instalment Outstanding Amount agreed
  • Charge frequency = calendar monthly
  • Financial Event = Select an event with an attribute "Variable Charges In Default  Interest"
  • Initial Charge value = 5.00 
  • Example Calculation:
    • Capital disbursed = 1000
    • Principal debt = 1012.3
    • Total Repayable = 1361.65
    • Instalment = 453.88
    • No of installments = 3 (e.g., #1 = 25/3; #2 = 23/4; #3 = 25/5)
    • March default:
      • Instalment #1 = 453.88 @ 5%pm for 6 days = 453.88 * ((0.05)*12/365) * 6 = 4.4766
    • April default:
      • Instalment #1 453.88 @ 5%pm for 30 days = 22.38
      • Instalment #2 453.88 @ 5%pm for 7 days = 5.22
• Default Charges: Default charges can include:

a) Attorneys' fees and other costs incurred in collecting amounts owed by the Defaulting Party.
b) Any interest at the Agreed Rate accrued on amounts as set forth in the agreement.
c) Third-party costs of obtaining and maintaining any Security incurred by the non-defaulting Parties or the funds paid by such Parties in order to allow Operator to obtain or maintain Security.

Note: Fees and interest must always be configured in line with the country’s applicable laws and regulations.

Default (Penalty) Interest VC

Default interest is calculated on arrears installments. Some scenarios are worth mentioning:

Scenario	Description	Documentation
Partial Payment in the middle of the month	Only the applicable portion of the default interest is posted	VC Default examples
No payment and grace period	Add the grace period to the instalment date to determine if it will be charged	See VC Default examples
"Charge fees and interest when in default" is off	No default interest will be charged	See VC Default examples
"Do not charge interest and fees" is on	No interest and fees will be charged	See VC Default examples

Compound Interest VC

The monthly transaction calculation and recording will work on the outstanding balance (also called deferred amount). Some scenarios are worth mentioning:

Scenario	Description	Documentation
Payment	Interest is not calculated on the fees that do not form part of the principal debt	VC Compound examples
No Payment	Monthly Interest charged will not be more than the first month's interest	See VC Compound examples
First instalment skip first calendar month	Interest will not be charged in the first month	See VC Compound examples
Pay more than agreed	The monthly interest will be less than agreed.	See VC Compound examples
Pay less than agreed	The monthly interest is more than agreed. An adjustment is recorded to correct the balance.	See VC Compound examples
Loan creation the day before month-end	The monthly interest is charged on month-end.	See VC Compound examples