---
title: "In-Built Loan Behaviour"
canonical: "https://bizcore.refined.site/space/BCKB/1809121281/In-Built%20Loan%20Behaviour"
format: markdown
---
> Macro (toc)
# **Overview**
Managing a loan can involve numerous tasks, but with Biz Core subscribers have integrated features that help simplify and automate the process, reducing the workload for users.
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# **General Loan Behaviour**
- Interest is calculated and charged to the loan on a daily basis, at midnight AEST every night:
- Compound interest calculation is: `(Total Balance * (Annual Interest Rate ÷ 365.25))`
- Simple interest calculation is: `(Reducing Principal Balance * (Annual Interest Rate ÷ 365.25))`
- Time-based Workflow actions are processed at 10:00AM AEST.
- Missed payment fees (AKA Dishonour Fees) are automatically applied whenever a scheduled payment is missed or declined.
- Scheduled repayments can exceed the loan balancing owing.
- Once the balance of the loan reaches $0.00 or less, the loan status will change to Settled.
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# **Arrears Behaviour and Calculation**
Users have the option to choose from two different modes of arrears for loans. During the setup of a loan product, they can select the desired mode to govern how arrears are managed. See [Loan Product Setup](https://bizcore.refined.site/space/BCKB/1776680977/Loan+Product+Setup) for more information.
A loan can be categorised as either **On Schedule**, in **Positive Arrears** or **Negative Arrears **at any point in time. The current arrears state can be seen on the Loan Summary.
| **Arrears State** | **Description** | **Example of how it appears in Biz Core** |
| --- | --- | --- |
| **On Schedule** | The loans is **being paid as scheduled.** | $0.00 (0 days) |
| **Positive Arrears** | The loan is **behind on repayments.** | $100.00 (2 days) |
| **Negative Arrears** | The loan is **ahead on repayments.** | -$100.00 (0 days) |
- The system will automatically change the loan status from Active to Arrears if the loan enters a Positive Arrears balance.
- The loan status will automatically change from Arrears to Active if the loan returns to being On Schedule or enters a Negative Arrears balance.
- If a loan is in the Managed, Collections or Collections: Managed status, it will not automatically change the status to Active or Arrears, but the Arrears Balance will still be tracked.
- The (X days) next to the Arrears Balance shows how many days it has been since the loan went into the Arrears status
- The days will continue to be counted unless the loan goes back into the Active status, e.g. if a user changes the loan status from Arrears to Managed, the days in arrears will still increment.
## **Calculation**
Arrears Balance = Total Balance - Expected Balance
- Total Balance = Sum amount of all ledger entries.
- Expected Balance = Sum amount of scheduled payments (excluding scheduled payments missed while a payment hold was enabled) + expected fees charged up to the date of the most recent ledger entry.
> ℹ️ The Expected Balance represents the projected Total Balance of the loan if it were being paid on schedule without any missed repayments or unexpected fees.
Expected fees are are accounted for when the payment schedule is calculated. For example: Interest is an expected fee and included in the Expected Balance. A Dishonour Fee** is not **an expected fee and **not included** in the Expected Balance, therefore, the Arrears Balance will increase by the amount of unexpected fees charged.
Each ledger entry tracks the Expected Balance which can be found by expanding any ledger entry. The Arrears Balance calculated will always be based on the Expected Balance in the most recent ledger entry.
## **Calculation** **Example**
> ⚠️ For simplicity, in this example, we will show interest being charged the day before each scheduled payment. However, it's important to note that in reality, interest is charged daily at midnight AEST.
| **Date** | **Ledger Entry** | **Amount** | **Total Balance** | **Expected Balance** | **Standard Arrears Balance** | **Payment Arrears Balance** | **Notes** |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 01/01/2022 | Loan Advance | $5,000.00 | $5,000.00 | $5,000.00 | $0.00 | $0.00 | |
| 06/01/2022 | Interest | $10.00 | $5,010.00 | $5,010.00 | $0.00 | $0.00 | |
| 07/01/2022 | Scheduled Payment (Successful) | $100.00 | $4,910.00 | $4,910.00 | $0.00 | $0.00 | |
| 13/01/2022 | Interest | $10.00 | $4,920.00 | $4,920.00 | $0.00 | $0.00 | |
| 14/01/2022 | Scheduled Payment (Declined) | $100.00 | $4,920.00 | $4,820.00 | $100.00 | $100.00 | Loan status changes from Active to Arrears |
| 14/01/2022 | Dishonour Fee | $15.00 | $4,935.00 | $4,820.00 | $115.00 | $115.00 | |
| 13/01/2022 | Interest | $10.00 | $4,945.00 | $4,830.00 | $115.00 | $115.00 | |
| 21/01/2022 | Scheduled Payment (Successful) | $100.00 | $4,845.00 | $4,730.00 | $115.00 | $0.00 | Payment Arrears mode would change the loan status from Arrears to Active |
| 22/01/2022 | Unscheduled Payment (Successful) | $150.00 | $4,695.00 | $4,730.00 | -$35.00 | -$150.00 | Loan status changes from Arrears to Active |
## **Standard Arrears vs Payment Arrears**
In Standard Arrears mode, the loan will only return to Active status and have a balance of $0.00 if the full Positive Arrears balance is paid.
In Payment Arrears mode, the loan will reset to $0.00 and become Active if a single payment is received above the minimum payment threshold (set on the Details page of the [Loan Product Settings](https://bizcore.refined.site/space/BCKB/1776680977/Loan+Product+Setup)), regardless of the amount the loan is in Positive Arrears
If users have Payment Arrears mode selected, both the Standard and Payment Arrears Balances will be displayed, but the loan will prioritise the Payment Arrears mode as its primary Arrears Balance and ruleset.