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Payment allocation

When a payment of any kind is applied to a loan (whether scheduled, ad hoc from the borrower, or manually registered by a credit officer), the system allocates the amount across the loan’s outstanding components in a fixed order. This ensures consistent treatment across product types and providers.

Allocation order

The amount is consumed in this order, stopping when no money remains:

  1. Overdue penalties — accrued penalty fees on overdue amounts.
  2. Default interest — penalty interest accrued on overdue principal.
  3. Overdue interest — regular interest that became overdue.
  4. Overdue principal — principal that became overdue.
  5. Current interest balance — interest accrued for the current period.
  6. Current principal — principal due.

Outcomes of allocation

  • The loan snapshot is recalculated: each component is reduced by the allocated portion.
  • Overdue date is cleared as soon as overdue amounts reach zero, and the loan returns to Active.
  • If all obligations are satisfied, the loan moves to Repaid (terminal).
  • A Repayment loan event is recorded with the full transaction amount and the resulting snapshot.

Why the order matters

Overdue obligations are settled first to bring the loan out of default as quickly as possible — this stops default interest from accruing. Current obligations come next. Borrowers who pay more than required see the excess applied to the loan early (early repayment), which can shorten the loan term or reduce future interest, depending on the product’s calculation strategy.

Special cases

  • Waived debt is removed from the snapshot before any incoming payment is allocated, so a waiver of overdue penalty effectively skips step 1 above.
  • Adjusted loans (after a restructuring is applied) get a fresh amortization schedule; payments are allocated against the new schedule from the next period onwards.