Once a deal is struck and the loan is made, the amortization table is less relevant. Payments from borrowers often do not exactly match schedules on the amortization table. Here's what to do in some common repayment scenarios.
The borrower routinely makes several small payments.
- Record the first small payment with the Date Applied one day prior to the due date for the payment. This prevents Moneylender from advancing the loan to the next due date. Enter the amount paid and the receipt date normally.
- Perhaps the next payment doesn't fully cover the remaining amount due, but you expect additional payments prior to beginning the next cycle on the loan. (For example, this is the second of three payments you expect for this due date.) Record the Date Applied one day earlier (as before) to keep the program from advancing to the next due date. Date Received is when you got paid. Amount matches the amount the borrower just paid.
- When you receive the final payment you expect for the period, record the Date Applied as the due date for the loan. This lets Moneylender advance to the next due date. The Amount matches the amount of the payment, and the Date Received is when you were paid by the borrower.
The borrower pays less than the amount due.
- If this is the only payment you're expecting the borrower to make prior to the next due date, record it normally. The Date Applied matches the due date for the payment. Set Date Received to when the payment arrived. Moneylender advances to the next due date, and the unpaid remainder is included on the amount due for the following month.
- If the borrower makes up the shortfall prior to the next due date, record this supplemental payment by setting the Date Applied to the same due date that the earlier payment applied to. Amount and Date Received indicate how much was received and when. Since the due dates on both payments match, they are both treated as part of the same calculation cycle.
- If a couple of cycles go by and the borrower is more than one payment behind, follow the previous scenario that addresses how to apply several small payments.
The monthly payment, $1000, is due on the first of the month. Starting in January, the borrower pays $600 on the fifth of each month.
|Payment||Date Applied||Date Received||MLP's Next|
|Amt MLP shows|
|$600||Jan 1||Jan 5||Feb 1||Feb 1 - $400 past due, $1400 due|
|$600||Feb 1||Feb 5||Mar 1||Mar 1 - $800 past due, $1800 due|
|$600||Feb 1||Mar 5||Mar 1||Apr 1 - $1200 past due, $2200 due|
|$600||Mar 1||Apr 5||Apr 1||May 1 - $1600 past due, $2600 due|
|$600||Mar 1||May 5||Apr 1||Jun 1 - $2000 past due, $3000 due|
|$600||Apr 1||Jun 5||May 1||Jul 1 - $2400 past due, $3400 due|
|$600||May 1||Jul 5||May 1||Aug 1 - $2800 past due, $3800 due|
If you are not reporting your loans to credit bureaus using Moneylender's Metro2 capabilities, it is less important to always set the Date Applied so Moneylender accurately reports the delinquency of the account.
If you are using Metro2 reporting, or just wish to be meticulous in your record keeping, the question becomes whether to:
Assuming monthly payments, a loan is 30 days past due if a borrower is at least one full payment behind. If a borrower is two full payments behind after a payment is applied, the loan is 60 days past due. By looking at the amount due and the regular payment, you can determine how far back the Date Applied should be.
- Set the Date Applied to the current due date Moneylender automatically sets in the dialog OR
- Change the date to the previous cycle's due date to keep the loan from advancing
In our example:
- When the March 5 payment leaves one full regular payment unpaid, we set the Date Applied one month earlier (Feb. 1).
- When the May 5 payment is fully two regular payments short of the amount due on the statement, we set the Date Applied to two months earlier (March 1). May's statement shows $2600 due. The borrower's $600 payment on May 5 leaves two full months remaining.
- When the $600 payment on July 5 comes in, the amount due on the statement is $3400. That leaves $2800 remaining, so the Date Applied is two cycles prior to the date (May 1).
- Next month, if things keep up this way, the Date Applied will need to be three cycles earlier.
Fixed Term Loans vs. Flexible Repayment
Fix Term Loans and Flexible Repayments both follow the same guidelines for recording payments. The one difference: with Fixed Term Loans, payments are credited toward the balance on the Due Date for each respective cycle. On a Flexible Repayment loan, payment is credited against the balance on each Date Received.
Marginally more interest accrues on a Flexible Repayment loan. This type of calculation slightly favors the lender when a borrower is late and slightly favors the borrower if payments are early.
The borrower does not pay for a long time and then makes a large payment to catch up on the loan.
Check your loan documents to see if you are required to handle late payments in a specific way. In most cases, the option to use is at your discretion.
Option one: Record $0 payments for the older due dates to tell Moneylender it is OK to advance the loan. Record the payment as a single large payment.
This gives you all the interest you are entitled to while catching up the loan using the $0 payments. If the amount paid is not the full amount due, determine how many full regular payments will still be due after the payment is applied. That is the number of cycles to set back the payment's Date Applied.
- If the borrower pays the amount due or close to it, record $0 payments with the Date Applied set to each due date prior to this payment. Set the Date Received to the date you actually received this large payment so Moneylender properly determines the late fees owed.
- Record the payment with the Amount set to the amount of the payment.
Option two: Split the payment into several smaller payments. The loan's repayment more closely follows a normal amortization table even though the borrower's payments deviated wildly. That means you receive less interest.
This is a valid and legal way of applying the payment. However, use the first option unless a legal reason requires you to credit the borrower as though payments arrived earlier than they actually did. To split up payments in Mondeylender:
The loan is now as current as the amount of the payment allows. You see that one payment was applied across multiple due dates, because the Date Received and the notes match on all of the payment records.
- Determine how many regular payments the large payment covers.
- Beginning with the oldest unpaid due date, record individual regular payments with the Date Applied set to the due date for each cycle, and the Date Received set to the date of the lump payment. In the notes, be sure to enter the check number or other description so it is easy to see that multiple payment records came from a single payment.
- If there is more than exactly one regular payment remaining, group the extra in with the last payment entry so the total of these smaller payments exactly matches the total you were paid.
The borrower pays with two partial payments (for example, cash and credit card).
Moneylender applies the earliest payments and then the smallest payments. The result is the same as if one large payment had been recorded.
- Record each payment with a Date Applied that matches the due date the payment was intended for.
- Set the Date Received to match when you received each payment.
- Record the Amount of each payment to match the actual payment.
The borrower pays extra.
Simply enter the full amount of the payment. Moneylender automatically applies overages appropriately. Typically, the overage is applied toward principal.