January 16, 2015

RETAIL Multiple Interest Rates Structures

Retail Multiple Interest Rates Structures

The retail system provides a full range of pricing opportunities for line of credit, simple interest loans, and sold loans. These RETAIL Multiple Interest Rates Structures include variable rates, tiered rates, introductory rates and promotional rates.

Variable Rates

Our system allows rate changes on a group of loans associated with a user-entered index code. Floors and ceilings can be established at the loan level or group level to control the amount of change.

The system allows mass rate changes to be entered online or through the offline processing.

A user-defined index relation percentage can be added to or subtracted from the rate on the associated index.

Through the rate change adjustment tolerance, the user can control the minimum change that a loan’s rate may vary per index rates change.

Index Floor Rates and Index Ceiling Rates are options that are available for each line or loan. Usury rate validation also applies to each rate change processed by the system.

Options also exist to control rate changes over a user-defined period of time. Data included are:

  • Period Ceiling
  • Period Maximum Rate
  • Period Frequency Code
  • Period Ceiling Starting Date
  • Period Ceiling Starting Rate

The effective date of the rate change on the loan or line is computed based on the effective date of the index change and the loan index frequency. Here is a summary of the available frequencies:

  • Monthly
  • Semi-monthly
  • Quarterly
  • Semi-annually
  • Annually
  • Every 2, 3, 4, or 5 years based on Note Date
  • Cycle Begin Date
  • Effective date of the index change
  • On next Interest Due Date
  • On next Principal Due Date
  • 1 – 9 days after the effective date of index rate change
  • Manual

Interest Rate Change Notices are optionally produced. If produced, the notices can be in a Reg Z or non-Reg Z format. Rate Change Notices can be produced prior to the effective date of the rate change based upon user-defined options.

Tiered Rates

The RETAIL Multiple Interest Rates Structures processing allows:

  • Multiple tiers
  • Accrual Methods
    • Step method – Interest accrues on outstanding loan balance increments using multiple balance and rate tiers.
    • Balance method – Interest accrues on multiple rates based upon the current outstanding loan balance.
  • Tiers may be
    • Tied to different index rate codes
    • Use different index relationships
    • May change independently
  • Tiers may be fixed rate tiers.
  • All Calculation Methods are valid.

Introductory Rate Processing

The Promotion Rate Processing allows an institution to offer its customers non-standard, introductory interest rates for a designated period of time from booking date or until a designated future date for all new and/or specified existing simple interest loans/lines. Once the introductory rate period has expired or the designated future date has been reached, the customer’s interest rate will automatically revert to a predetermined fixed rate for each applicable installment loan or the current applicable variable rate for line of credit or variable rate installment loans.

Promotional Pricing

The Promotional Pricing Option offers processing capabilities on line of credit. The accrual on loan balances prior to a specified promotion period may be at a different rate from those advances taken out during the promotion period. The promotional rate may be applied to either the entire balance or new advances only.

Below are options that are included with Promotional Pricing:

  • Balances Affected
    • All Balances
    • Incremental Balances (New money advanced during the promotional period)
  • Minimum Balances Required During Advance Period
  • Minimum Incremental Balances, the monthly average balance that must be maintained during the Promotion Rate Period to keep the promotion rate
  • Advance Period Start and End Dates, the period during which new advances are eligible for promotion
  • Promo Rate Start and End Dates, the promotional period during which promotional rate applies
  • Promotional Rate
    • Specified Fixed Rate
    • Specific margin that is netted against the index to calculate the promotional rate.
  • Disqualification Criteria
    • Number of Cycles Delinquent
  • Principal and/or interest payments are applied first to the promotional balance and then to the non-promotional balance.
  • Promotional rates may be fixed, adjustable, or tiered.
  • There is full transaction backdating capability for promotional rate processing.
  • New lines set up on existing promotion may receive credit for the entire promotional period.
  • Lines entered via maintenance transactions automatically have interest adjustments calculated and applied based on the effective date of the promotion and the eligibility of the line.
  • The promotion interest credit is the method by which the customer receives the benefit of the promotional rate. The borrower can clearly see the benefit received during the promotional period.

Complete transaction history is maintained for all rate options.