Loan Take On

Slide 1

Normally, when we Open a New Loan, there is going to be a Cash Draw down at some stage, and that will then become the Outstanding Balance on the Loan.

In this Session we are looking at how we do a Take-on for a Loan that already has a Balance. In other words we take over a Loan from another System.

Slide 2

So what we do in this case is that we Open the Loan and then we perform a Loan Charge.

Either to the Capital or to the Capital and the Current Portions of the Loan.

Note that on this New Loan in this example, there is no Balance at the moment.

In other words, the Loan has been Opened but there is no Balance.

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We are not going to perform a Cash Draw down because the Loan is already in existence and it has a Current Balance that we wish to Take-On.

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And so we use a Loan Charge Option.

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The Transaction Date that we use will be the Date of Taking Over the Loan Balance and the Loan Balance as at this Transaction Date must include all Interest up to, and including this date.

Therefore we will usually probably use an end of month date.

In this example I am using 22^nd February.

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There are different Charge Types that we may apply and in this case we would usually use the Charge Type “Other”.

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Note that we need a Ledger Contra for the Taking-On of the Balance and this will usually be a Balance Sheet Account that we use as the Balancing of the Taking-On of the Balance.

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The “Transaction Period” is the Period in which we Record this Transaction.

In this case I am using Dec 07 (period 83).

More appropriately it probably should have been Feb 08.

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Now note that in this case I am using Capital Charge as “Yes”.

In other words the Full Balance of 19.000 is going to be recorded against the Capital of the Loan.

Now what if we have this Loan Balance of 19,000, but 500 is actually an Installment that is Overdue, i.e. Current. In that case we would have charged 18,500 against Capital and then we would do another Transaction where we say Capital Charge is “No”.

In other words the other 500 would then be posted against Current.

In this case we are saying there is nothing in Arrears at this point in time. So on the 22^nd February the Loan Balance of 19 000 actually represents the Capital Balance.