The Payment Method

4.2.13 The Payment Method

The payment method, specified for the main interest of the product (whether bearing, discounted or true discounted), applies to the contract as well. The method defined for the product is displayed here

Table 4-4 Payment Method

Field	Description
Bearing	Interest is liquidated on schedule payment date(s). Example You have advanced Mr. Brian Williams a loan of USD 10,000 under the scheme Short Term Loans For Individuals at 10% interest for a year. Under the bearing type of interest payment method, the nominal (USD 10,000), which becomes the principal in this case, is advanced to Mr. Williams. The interest on it is collected over one year, which is the tenor of the loan.
Discounted	In this interest payment method, the interest is deducted at the time of initiating the loan. Example You have issued a loan of USD 10,000, under the scheme Short Term Loans For Individuals, at 10% interest for a year, to Mr. Brian Williams. Under the discounted type of interest payment, the total interest calculated for the tenor of the loan, (USD 1,000), is deducted from the nominal (USD 10,000) and only USD 9,000 is advanced. This forms the principal of the loan.
True discounted	In this interest payment method, the interest is calculated on the principal of the loan and not on the nominal. All the same, like the discounted method, the interest is deducted from the principal at the time of initiation of the loan. Example You have advanced Mr. Brian Williams a loan of USD 10,000 under the scheme Short Term Loans For Individuals at 10% interest for a year. Under the true discounted type of interest payment, the interest amount in absolute terms is not USD 1,000 but less than that. This is because the interest rate of 10% is not applied on USD 10,000 but on the actual amount disbursed (derived by the system) which is USD 9090.91.

Field

Description

Bearing

Interest is liquidated on schedule payment date(s).

Example

You have advanced Mr. Brian Williams a loan of USD 10,000 under the scheme Short Term Loans For Individuals at 10% interest for a year.

Under the bearing type of interest payment method, the nominal (USD 10,000), which becomes the principal in this case, is advanced to Mr. Williams. The interest on it is collected over one year, which is the tenor of the loan.

Discounted

In this interest payment method, the interest is deducted at the time of initiating the loan.

Example

You have issued a loan of USD 10,000, under the scheme Short Term Loans For Individuals, at 10% interest for a year, to Mr. Brian Williams.

Under the discounted type of interest payment, the total interest calculated for the tenor of the loan, (USD 1,000), is deducted from the nominal (USD 10,000) and only USD 9,000 is advanced. This forms the principal of the loan.

True discounted

In this interest payment method, the interest is calculated on the principal of the loan and not on the nominal. All the same, like the discounted method, the interest is deducted from the principal at the time of initiation of the loan.

Example

You have advanced Mr. Brian Williams a loan of USD 10,000 under the scheme Short Term Loans For Individuals at 10% interest for a year.

Under the true discounted type of interest payment, the interest amount in absolute terms is not USD 1,000 but less than that. This is because the interest rate of 10% is not applied on USD 10,000 but on the actual amount disbursed (derived by the system) which is USD 9090.91.

Parent topic: Loan Disbursement Details