2. Limits
The next step is to set appropriate limits to ensure that the product is financially sustainable and meets the needs of both the lender and the borrower.
In this step, the user must configure the given Capital and Instalment constraints that will be imposed on the client.
These limits can be seen in the screenshot below:
Capital Constraints
Maximum and Minimum loan capital
These limits (amounts)should be based on the lender's capacity to provide funding and the borrower's ability to repay the loan.
Remember
According to the NCR, the maximum loan capital allowed for Short Term Credit Transactions is capped at R8,000
The cooling off period
A cooling off period is a period of time (days) during which the borrower has the right to cancel the loan agreement without incurring any penalty or fees
Maximum cost of credit.
This is a form of capping on the loan transaction and Mobiloan will not allow the total costs of the loan to exceed this percentage.
This limit should be based on market conditions and is useful to ensure that your business does not price itself outside of the market.
Capital Rounding
This refers to rounding down the loan capital (after levies) down to the nearest set value. Capital is always rounded down because of the very relevant affordability considerations.
Example: The cost of credit has been added to the principal amount to produce a total of R4,587.20.
If the user has Capital rounding set at (Nearest R10), the amount repayable will thus be 4,580.00
If the user has Capital rounding set at (Nearest R100), the amount repayable will thus be 4,500.00
If the user has Capital rounding set at (Nearest cent), the amount repayable will thus be 4,587.00
Instalment Constraints
Maximum Loan Term
The loan product must have a limit in the repayment term which is determined by the maximum length of time over which the loan can be repaid.
This limit should be based on the borrower's potential ability to make regular repayments and the lender's desired return on investment.
The term is normally based on the assumed instalment frequency of the product i.e. Monthly, Weekly and Fortnightly.
Maximum and Minimum first instalment days.
This refers to the number of days to lapse before the first instalment can be collected.
To define these limits, the user will declare the earliest and soonest possible first instalment date according to the days in future from the current date.
For example, if you set a Minimum First Instalment value of 40 days, then the first instalment must be dated within 40 days of the date that the loan was paid out.
As an aside, when setting the minimum first instalment days, bear in mind that a debit order instruction needs to be submitted a few days before the Instalment is due. Also remember that the cooling off period should not be in conflict with the minimum number of days!
Instalment Round
The client's instalment repayment amount is rounded down due to potential affordability concerns to an amount set here. This is similar to Capital Rounding.
It is important to strike a balance between these limits to ensure that the loan product is attractive to borrowers while also being financially sustainable for the lender. Properly defining these limits can help to minimize risk and ensure that the loan product is successful in meeting the needs of both parties.
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