Zero Principal Balance
Introduction
If the repayment of a loan goes roughly according to plan, it's likely that the principal balance will eventually be $0. This article covers what happens when the principal balance is zero on loans serviced in LMS.
This information is accurate for all loans created after the 03/19/2021 release. If a loan was created before this date, when the principal balance is zero, the loan will behave as described in the "Principal Balance is Less than Zero" section below.
Principal Balance is Zero, Payoff is Zero
If the principal balance is zero and the payoff balance is zero, the loan will be zeroed out. This means that amount and days past due, due principal, due interest, and due fees will all be zero.
It also means that when the calculator runs during daily maintenance, those zero values will be captured in the loan status archive.
Principal Balance is Zero, Payoff is Greater than Zero
If the principal balance is $0, but there is still outstanding interest, fees, or payoff fees on a loan, the payoff balance will be greater than zero. Daily snapshots will continue to be added to the loan status archive. No additional interest will accrue on the loan, because the principal balance is zero. However, any outstanding due interest, fees, or payoff fees will remain. Amount and days past due will continue to be calculated as they were before the loan reached a $0 principal balance.
If the interest balance on the loan is greater than $0, forecast payments will still be added to the transactions report. This will not be the case if only fees or payoff fees remain as they are not included in forecast payments.
Principal Balance is Less than Zero
In the event that the principal balance is overpaid and is less than zero, the numbers on the loan will be zeroed at the end of the period after the balance goes to zero. In practice, what this means is that the calculator will exit and no longer calculate any balance on the account including due interest, fees, and payoff fees, after the period in which the loan goes to zero (e.g. principal balance less than zero). This means that the amount and days past due, payoff balance, due fees, due interest, and due payoff fees will all be zero.
What's Next?
Here are some related articles that may be helpful to read after learning about the effects of a zero principal balance.
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