Short Term Payment Arrangements

A short term payment arrangement allows a customer to temporarily switch to interest-only repayments for a defined period. During this time, each installment covers only the interest accrued. At the end of the arrangement, the loan automatically reverts to standard principal and interest repayments.

How it works

Interest-only installment calculation

When an arrangement is created, the system identifies all installments within the selected period and calculates the new payment amount as follows:

1. The system finds the highest interest amount across all installments within the arrangement period.
2. All installments in the period are equalised to this highest interest value.
3. Because all installments are set to the same amount, in months where less interest accrues, the excess payment will reduce the principal balance slightly.

This ensures the customer always pays at least enough to cover the interest in every period, with consistent payment amounts throughout.

Example

The following illustrates an arrangement applied from 01/08/2020 to 01/10/2020. The highest interest within that period is 51.29 (installment 6), so all three arrangement installments are equalised to 51.29.

Installment	Due Date	Principal Expected	Interest Expected	Total Expected	Principal Balance	State
5 (Pre-arrangement)	01/07/2020	822.76	56.40	879.16	6,038.78	Pending
6 (Arrangement Start)	01/08/2020	0.00	51.29	51.29	6,038.78	Pending
7	01/09/2020	0.00	51.29	51.29	6,038.78	Pending
8 (Arrangement End)	01/10/2020	1.66	49.63	51.29	6,037.12	Pending
9 (Post-arrangement)	01/11/2020	1,489.58	51.27	1,540.85	4,547.54	Pending

During the arrangement

• Installment amounts are fixed at the equalised interest-only value.
• Overpayments and underpayments do not trigger a recalculation of the schedule.
• The loan's principal balance remains largely unchanged (minor reductions may occur in lower-interest months).
• Editing the principal of individual installments is not permitted while an arrangement is active.
• Other schedule modifications (edit due date, payment holiday) are also restricted for installments that are part of an arrangement.

After the arrangement ends

Once the final installment in the arrangement period is due, the system automatically:

1. Recalculates a new regular installment amount based on the current principal balance and remaining term.
2. Applies this new amount to all future installments.
3. Preserves the original loan maturity date — the term does not extend.

Creating an arrangement

Via the UI

1. Open the loan account and navigate to More > Edit Schedule > Interest Only Repayment.
2. Enter the Start Date and End Date. These must correspond to existing installment due dates.
3. Review the preview of the updated loan schedule showing the adjusted installment amounts.
4. Confirm to apply the arrangement.

Via the API

Create an arrangement with POST /loans/{loanId}/payment-arrangements. The arrangement covers a contiguous range of installments, defined by a start and end index (both inclusive).

Request body:

{
  "installmentIndexStart": 6,
  "installmentIndexEnd": 8,
  "note": "Customer requested 3 months of interest-only payments."
}

Field	Type	Required	Description
installmentIndexStart	integer	Yes	Starting installment index (inclusive).
installmentIndexEnd	integer	Yes	Ending installment index (inclusive).
amount	number	No	The total amount for the payment arrangement.
note	string	No	Optional note or description for the arrangement.

A successful request returns the created arrangement, including its id and installment range.

Validation rules:

• The range must cover at least two installments.
• The range cannot overlap with an existing arrangement.
• Past installments cannot be included.
• The arrangement cannot include the final or second-to-last installment of the loan term.
• An arrangement cannot be created if a payment holiday is active during the proposed period.

Editing an arrangement

An arrangement can be extended or reduced by adding or removing future installments.

Via the UI

Navigate to More > Edit Arrangement on the loan account.

• If the arrangement has not yet started, it can be cancelled in full.
• If the arrangement is currently active, past and current installments cannot be changed; only future installments can be added or removed.
• If the arrangement has not yet ended, it can be extended by adding future installments.

Via the API

Edit an arrangement with PATCH /loans/{loanId}/payment-arrangements/{paId}. Provide the updated installment range:

{
  "installmentIndexStart": 6,
  "installmentIndexEnd": 7
}

Validation rules:

• Current and past installments cannot be edited.

Cancelling an arrangement

An arrangement can be deleted in full only if none of its installments are current or in the past.

Cancel an arrangement with DELETE /loans/{loanId}/payment-arrangements/{paId}. No request body is required.

If the arrangement is already active (one or more installments are current or past), use the PATCH endpoint to adjust the installment range instead.

Retrieving arrangement details

• GET /loans/{loanId}/payment-arrangements returns a list of all arrangements on the loan.
• GET /loans/{loanId}/payment-arrangements/{paId} returns the details of a specific arrangement, including its installment range, amount, note, and timestamps.

Scenarios and edge cases

Interest rate change during an arrangement

The system follows Payment Modification Threshold rules:

• Before the threshold window: the arrangement installments are recalculated to reflect the new interest rate. Subsequent equalised installments are updated accordingly.
• Within the threshold window (the rate change occurs within the configured number of days before an installment due date): the installment payment remains unchanged. Any difference between the interest accrued at the new rate and the payment made is rolled over as unpaid interest.

Arrears

• If a customer is in arrears before an arrangement begins, those arrears persist throughout the arrangement.
• If the arrangement is in place before arrears would otherwise occur, making the interest-only payments will prevent the customer from falling into arrears for those periods.

Payment holidays

Arrangements and payment holidays cannot overlap. An arrangement cannot be created for any period that includes an active payment holiday.

Early termination

Customers can end an arrangement before its scheduled end date. When an arrangement ends early:

• Past installments are not affected.
• The system immediately recalculates the regular installment amount based on the current principal balance and remaining term.
• The new amount applies from the next scheduled due date.

Early payments

A payment made before its due date during an arrangement is applied to the interest due for that installment period.

Late payments

If a payment is not made by the due date, the total unpaid interest is carried forward in line with standard loan servicing behaviour.