1. Bilateral Loans
  2. Rolling-over a Loan
  3. Features of the Product Roll-over Details Screen
  4. Applying Tax on Roll-Over
  5. Rolling-over with Interest

9.2.8.1 Rolling-over with Interest

You have to specify whether the loan that you are rolling-over, should be rolled-over along with the outstanding interest. If you so specify, the principal of the new loan, is the sum of the outstanding principal and the outstanding interest on the old loan. This applies only to loans with a bearing (add-on) method of interest liquidation.

If all the outstanding interest has been paid, then the loan can be renewed without the interest. If not, it is rolled-over with the interest that is still outstanding on it.

A loan is rolled-over with only the main interest that is outstanding. It is that interest component, which you specify as the main interest in the ICCF Product Details screen (this is displayed in the Contract Main screen). Other interest components and the penalty interest, if there are any, are not rolled-over.

The following example illustrates how this concept works.

Example

Consider the example of Ms Yvonne Cousteau, who has taken a loan of USD 10,000 under the Short Term Loans for Individuals scheme,
  • On 1 June 1997
  • At 20% interest
  • To be liquidated at Maturity, on 31 December 1997
  • Ms Cousteau is unable to repay the loan, therefore, you decide to renew it (roll it over into a new loan).
  • You have two options:
    • You can roll it over without the outstanding interest
    • You can roll it over along with the outstanding interest
If you roll it over without interest, the new principal is USD 10,000. The accrued interest on this loan is liquidated. The loan is rolled-over, only if the interest can be liquidated. If there are no funds in the repayment account, there can be no rollover.

If you roll the old loan over (renew it), along with the unpaid interest, the principal of this renewed loan is USD 1, 1167 (USD 10,000 + USD 1,167) as of 31 December 1997. The interest on the new loan is applied on a principal of USD 11,167.

Parent topic: Applying Tax on Roll-Over