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Loan penalties can only be applied in accordance with the loan documentation. When loan documentation specifies a penalty, it may be applied as payments are posted. The Loan Master file, Loan Terms tab, allows you to enter the amount of the potential late fee, along with the number of days that must elapse before the late fee is to be applied, and if multiple penalty fees will apply if more than one payment cycle late.
When the Loan Master file has data within the late fee and subsequent days fields, payments posted with an activity date that warrants a late fee will automatically withhold the late fee amount. You can also manually enter the late fee when posting activity. When you do so, this amount will be deducted from the amount of payment going to principal.
If the activity being posted has insufficient cash to cover the current interest plus the late fee, you may see a negative amount in principal. This adds the penalty to the principal, which means interest will then accrue on the penalty amount because it has now become part of the loan balance. If you do not want this result, increase the accrued interest field by the amount needed to result in no change to principal.
Please note: If the activity, before any penalty/accrued interest adjustment is made, results in a negative accrued interest, it indicates the loan is behind on interest (accrued interest) and the program is attempting to collect the delinquent interest. To accomplish the adjustment explained in the paragraph above, decrease the accrued interest field by the same amount entered as the late fee, which should result in zero effect on principal. That amount will then remain outstanding interest, and will be collected through future payments.