Floating penalty with interest

A floating penalty with interest is a method of calculating the penalty rate as the higher of two values - the contract interest rate or penalty margin + penalty base rate.

The sum of penalty margin + penalty base rate defines the floor rate. The penalty rate should be the same as the interest rate but not lower than the floor rate.

The floor rate can be determined by the law. For example, the Bank of Finland publishes the floor rate value every 6 month, or it can be defined by the bank itself.

When adding a penalty base rate, make sure that the rateApplicationRule is set to INSTANT. This way the Tuum system recalculates all related floating penalty with interest contracts accordingly when the floor rate is changed.

Configure penalty

You can configure the floating penalty with interest for the following parameters:

• Principal,

• Interest conditions,

• Interest on unused limits and fees.

Before setting up a floating penalty with interest, ensure that the interest base rates are added to the Tuum system.

To add a floating penalty with interest:

1. Loans > Products > Loan products.

2. Create a new product.

3. Scroll to the Principal/Interest conditions/Interest on unused limit/Fees.

4. Select the Penalty checkbox.

5. For the Penalty type, select Floating penalty with interest.

Find more information about setting the loan interest conditions parameters in the loan product guide.