NetLoan — Configuring Daily Compounding Interest
Overview
This article explains how to configure daily compounding interest on a NetLoan loan record. Daily compounding applies a discrete compound interest formula to each schedule period — using the day count derived from the loan's Day Count Convention — and capitalizes the resulting interest into the principal balance at the end of every period. This configuration is appropriate for loans that require compound interest — where each period's interest is added to the principal balance and becomes the base for the next period's calculation — rather than standard simple periodic interest.
Prerequisites
- Creating a new loan: NetLoan Loan record Create access is required. The Interest Capitalization Frequency can be set during loan creation — no existing Loan record is needed beforehand.
- Editing an existing loan: The loan must be in Pending status. NetLoan Loan record Edit access is required.
- The amortization schedule will need to be generated (or regenerated if the loan record already exist) after the Interest Capitalization Frequency is set.
- Daily compounding is not compatible with Rule of 78 or Simple Schedule schedule types; those types use separate interest formulas that are unaffected by this setting.
Step-by-Step
1. Open the Loan record you want to configure and click Edit.
2. Select the Accounting subtab.
3. Locate the Interest Capitalization Frequency field and set it to Daily.
4. Set the Day Count Convention field to match the loan's interest calculation requirements.
5. Save the Loan record.
6. Generate the loan schedule. NetLoan will apply the compound interest formula to each period using the day count derived from the selected Day Count Convention.
To set a default Interest Capitalization Frequency for all loans of a given type, navigate to the Loan Type record and configure the Default Interest Capitalization Frequency field.
Considerations
- "Daily" refers to the compounding formula, not schedule line frequency. Setting Interest Capitalization Frequency to Daily does not create one schedule line per day. NetLoan still generates one schedule line per payment period (e.g., monthly). The Daily setting changes the interest calculation formula used within each period — the actual calendar days (or 30/360-normalized days) in that period are plugged into the compound formula to produce the interest amount for that line.
- Interest is always capitalized on every schedule line. With Daily selected, accrued interest is added to the principal balance at the end of every schedule line — including accrual-only lines, not just payment lines. There is no option to apply the Daily compound formula without capitalizing interest into the balance. The Capitalized Interest and Accumulated Capitalized Interest fields on each schedule line track how much interest has been added to principal over time.
- The capitalized balance rolls forward each period. Because interest is capitalized at the end of each period, the next period's interest is calculated on a higher principal balance. This is the compounding-across-periods effect — it is mathematically correct and expected behavior.
- Balance Cap interaction. If a Balance Cap is configured on the loan, it may override the post-capitalization balance. Verify that no unintended cap is in place before generating the schedule.
- Entering the correct rate matters. If the client's interest rate is expressed as an effective annual rate, it must be converted to a nominal APR before being entered into NetLoan's APR field. The number of decimal places available in the APR field depends on whether the Precision APR setting is enabled in NetLoan Setup — standard APR allows 4 decimal places; Precision APR allows 8.
Record Structure
Loan Record
| Field Name | Field Type | Description | Example | Field ID |
|---|---|---|---|---|
| Interest Capitalization Frequency | Select | Determines the compounding frequency used in the interest calculation. Setting to Daily applies a discrete compound interest formula using the day count for each period. | Daily | custrecord_da_loan_interest_cap_freq |
| Day Count Convention | Select | Determines how days in a period and days in a year are counted, which feeds directly into the compound interest formula. | Actual/360 | custrecord_da_loan_day_count_convention |
Schedule Line Record
| Field Name | Field Type | Description | Example | Field ID |
|---|---|---|---|---|
| Loan Balance | Currency | The running principal balance at the end of each period, including any interest capitalized in prior periods. | 529,761.27 | custrecord_da_lse_loan_balance |
| Capitalized Interest | Currency | The amount of interest added to the principal balance on this schedule line. | 2,165.78 | custrecord_da_lse_cap_interest |
| Accumulated Capitalized Interest | Currency | The running total of all interest capitalized into the principal balance over the life of the loan to date. | 10,829.15 | custrecord_da_lse_accum_cap_interest |
