Loan details

 Loan 01920562
 PCP Clearance Loan
 Rate changed from 5.95% to 7%

Schedule before rate change

 Constant repayment of €309

 Final repayment of c. €180
 See below screenshot from production

Schedule after rate change

 Constant repayment of €305.96

 Final repayment of €305.90
 Repayment amount has decreased even though rate has increased
 See below screenshot from SIT

While this loan has a small UNC amount (€309), it is not the UNC that is causing the issue. This loan
migrated with a final repayment of €222.09. Because the final repayment amount is significantly lower
than the constant repayment amount, when the rate change is applied and the new schedule is built,
the payments are more evenly spread so that the final repayment amount is not much lower than the
constant repayment. This in turn has the effect of reducing the constant repayment amount on this
loan even though the rate has increased.

Impacted loans
Aside from loans which have migrated from R08 with a significantly smaller final repayment there is
another scenario where this issue may arise.  When a member is applying for a loan they have the
option to choose the term or the repayment amount. When they choose the repayment amount, there
may be a significant difference between the constant repayment and the final repayment.

For example:

 Member applies for a loan for €1,000

 Member chooses repayment amount of €100
  Cost of credit is €20
 The member will make a payment of €100 for 10 weeks, followed by a final repayment of €20
 In this case if we were to increase the interest rate (before the first repayment is made), the
new repayments would be based on the 11 week term and it is likely that the constant
repayment amount would reduce, while the final repayment amount would be closer to €100
 For example, new cost of credit is €40. Total cost of €1,040 will be spread over 11 weeks.
Constant repayment will be c. €95.

Note: There may be other scenarios whereby the constant repayment amount reduces when there is
an increase in the interest rate