LoanPro’s LMS offers a range of options for how accounts calculate interest and payments, ensuring compliance with regulations like the Truth in Lending Act (TILA) while maximizing flexibility. Whether you need to handle irregular payment periods, adjust interest rates by account size, or ensure compliance with different state regulations, LoanPro provides the tools to accommodate any lending scenario. 

LoanPro allows you to:

• Set up accounts with custom payment schedules, from irregular (long or short) first payment periods to uniform (think 30-day months) or actual day-based calculations. 
• Choose from multiple interest calculation methods (e.g., simple interest, rule of 78s, interest-only).
• Ensure interest application aligns with your business goals, whether that’s applying payments first to interest, principal, fees, or escrow.
  This level of configurability allows you to adapt your products to changes in regulatory requirements quickly.  

In this article, we’ll walk through the steps to configure interest rate calculations in LoanPro, covering everything from selecting interest calculation methods to setting up customer payment schedules and applying advanced settings for maximum flexibility and compliance.  

Settings that affect interest accrual

The following settings affect interest accrual on LoanPro accounts:

• Interest Rate
• Calculation Type
• Days in Year
• First Period Days and First-day Interest
• Interest Application
• Beg/End
• Last as Final
• Suspend/Resume Interest
• Configurable Payment Schedules
• Interest Accrual on Charges

Each of these settings contribute to the APR calculation of a loan and can be customized to meet the needs of your loan portfolio. Interest rate has the biggest impact on the APR, but other settings like Calculation Type and Interest Application play a large role as well. To configure a new loan or adjust an existing one, use the following information to create the best match for your loan. Most of these settings can only be adjusted on inactive loans.

Select interest calculation type

LoanPro supports 4 primary interest calculation types:

• Simple interest is the most common type that is calculated using the remaining principal balance and the interest rate.
• Simple interest locked is calculated the same as simple interest, but the total dollar amount of interest is set and will not change over the course of the loan even if the borrower is behind on payments.
• Interest-only is calculated much like simple interest, but when a payment is due, the borrower only pays the interest portion. These loans generally conclude with a balloon payment at the end of the term. 
• Rule of 78s allocates more interest to the earlier payments. It sums the loan term (ex: number of months) to create a fraction for each payment, meaning borrowers pay a larger portion of interest upfront.

These calculation methods can be selected when the loan is being created or later via the account page. However, the account must be inactive to adjust this setting. To see or edit the calculation type, navigate to the desired loan, then click Account Setup > Setup Terms > Advanced Configuration.

If the loan is already active and you would like to adjust the calculation type you must click ‘Inactivate’ then you can adjust the calculation type in the ‘Advanced Configuration’ tab. 

Interest Application

Interest Application determines how interest is calculated and applied for each payment. 

• Between Transactions: interest is accrued daily and will continue adding to the amount due until the borrower makes a payment. The more time between payments, the more the borrower owes in interest. Once they make a payment, the interest accrual is set to zero and they start earning again. 
• Between Periods: interest comes due by period (ex: every 30 days). When a payment is made, it covers the interest for the entire period, or the previous period, regardless of when the payment is made.

Like calculator type, this setting is configured in the Advanced Configuration tab when a loan is created or on the account page under Account Setup > Setup Terms > Advanced Configuration. 

Days in year

The Days in Year setting tells the calculator how to divide up the payments over the course of a year. This setting specifies whether the actual number of days in the year, 365 (366 for leap years) should be used to accrue interest, or whether the number of days should be based on the payment frequency. For example, a monthly payment frequency would include 12 30-day months or 360 days in the year. This is configured in Advanced Configuration. To view or edit this setting navigate to the loan then to Account Setup > Setup Terms > Advanced Configuration. 

Managing first periods and interest accrual

When accruing interest on a loan you may want to specify what day the loan begins accruing interest and what to do with partial periods at the beginning of a loan. In the account configuration you can make the selection and the calculator will adjust accordingly. 

• First Period Days determine how the account should be calculated if the time between the contract date and first payment date is more or less than a regular payment period. 
• First Day interest is a toggle that determines whether interest should accrue on the contract date or the following day.

Managing Unit Periods and Odd Days for irregular first periods

If the difference between the contract date and the first due date is not equal to a standard unit period, then the account has an irregular first period. LoanPro is equipped to recognize this and offers different options for how to handle the irregular days. Read more about custom payment schedules here. 

Configuring APR

LoanPro uses the actuarial method to calculate APR. The actuarial method calculates APR as the interest rate that will cause the present value of future cash flows (payments) on an account to equal the amount. The interest rate is calculated using an iterative method, because there isn’t an easy way to calculate exactly what it should be. Our amortization software calculations match that of the FFIEC's APR Computational Tool, as recommended by the FDIC and OCC.