Changes Coming to How Interest-only Payments are Applied


As previously announced, changes to how interest-only payments will be applied (as detailed below) were delayed from their initially planned October implementation date.  The changes to interest-only payments will now be implemented starting tomorrow morning, January 4th.  For details about how the date comparison is made, please refer to the Interest-payment Only Loans booklet.


One of the requests we’ve received from numerous credit unions over the years is to change the way that payments on interest-only loans are applied, in cases where the member pays more than the scheduled payment amount.

Currently, unless the “principal only” option is selected or a teller overrides the payment matrix manually, any additional amount always gets applied to accrued interest on the loan. Only when that is satisfied does any extra get put onto principal. That works fine for other types of loans, but causes confusion to members for interest-only loans when they want to simply put a little extra onto principal with their payment.

What’s changing next Tuesday?

Starting on October 19th, when a payment is made to an interest-only loan, the system will do a date comparison* to determine if the payment is intended to satisfy the current period, and if so, then any extra will be put automatically toward principal.

A couple exceptions:

  • If the loan is delinquent, then any payment received is posted according to the payment matrix (meaning that extra funds would go to accrued interest first).
  • If based on the due date comparison we see that the member is attempting to pay in advance of the date when the payment amount would normally be calculated, then we’ll post the entire amount toward principal instead.

What do you have to do?

Nothing. Starting after the changes are put early in the morning on the 19th, all interest-only payments will automatically use this new technique. There’s no configuration flag you need to set.

Remember also that you can still use the existing principal-only payment options or the Payment Matrix Override to apply all funds to principal, or in some other way, the same as you can as now.

Special thanks to Notre Dame FCU for working with us to beta-test the process over the past couple of months!

For the details about how the date comparison is made, refer to the Interest-payment Only Loans booklet.