Introduction

12.1 Introduction

In Installment Loans the tenor of the loan is divided into periods by defining Unearned Interest Schedules (one period is the interval between two Unearned Interest Schedules). The system first calculates the interest amount for the period that is starting based on the Principal outstanding at the beginning. Subsequently, the interest amount is allocated to all the interest payment schedules within the period.

Let us assume that your bank has to process an Annual Rest Loan with a tenor of 36 months. Oracle Lending processes such loans in the following manner:

At the start of every 12 month period, the monthly interest installment amount for the next 12 months are to be computed based on the outstanding principal at the start of the 12-month period.
At the start of the 12 month period, the total interest amount for the next 12 months is passed to an Unearned GL (the interest amount is unearned as you calculate the interest for a future period). Consequently, the following accounting entries can be passed in Oracle Lending by setting up entries as defined below:
On complete payment of monthly installment amount towards principal and interest, the Unearned interest amount can be accrued as shown:
If the customer makes a prepayment, the entries for the unamortized unearned interest can be reversed as shown:
If there is any change in the status of Annual Rest Loans, the reversal of accruals also involve the reversal of the unearned interest amount that is not accrued. Accordingly entries can be set up as follows:
During write-off of Annual Rest Loans, you can reserve a GL for the outstanding principal as shown:
In case your bank recovers the loan amount after write-off, the GL reserved for doubtful items can be debited to the extent of the outstanding principal payment as indicated below:

This topic contains following sub-topics:

Parent topic: Annual Rest Loans