Reference interest rate - a published interest rate financial institutions use as a benchmark to define the interest rates for loans and other financial products. Each currency has its own set of reference rates with values per maturity, usually ranging from overnight to 12 months. These rates are officially announced once daily during working hours, typically around mid-day. For example:
Euribor - Euro Interbank Offered Rate.
LIBOR - London Interbank Offered Rate.
Base interest rate or a base rate - is the reference rate used in the particular Tuum loan product.
Margin - a percentage that is added to the base rate. The margin can be adjusted throughout the loan origination process.
Floating interest rate - a variable interest rate applied to the loan interest calculation. The floating rate is calculated as = base rate + margin.
Interest rate cap - a limit on how high a floating interest rate can rise. Rate fixing - setting the new reference rate value with the fixation date in Tuum.
Floating penalty with interest - it applies to the contracts and calculates contract penalties with a higher component: contract interest rate or penalty interest rate.
To start with the base rates/interest rate caps, you must complete the following steps:
Add the base rate types/interest rate cap types to the Tuum system.
Apply the base rate/interest rate cap to the Tuum products.
Once the base rate/interest rate cap is configured for a loan product, the loan offers and contracts are created with the corresponding interest settings.
In this guide, you will find information on how to add currency-based interest rates to the Tuum system. The base rate control is a part of the currency API functionality. Therefore, this functionality has a cross-product usage. Currently, this feature is available for the loan products.
With the example of the loans module, we will show how you can configure a new loan product with a floating interest rate and apply reference rates as a base rate or interest rate cap.