NetLoan — Payment Application Hierarchy Reference

Overview

This article documents how each of NetLoan's active payment types applies a payment amount across the four balances tracked on a schedule line: current period interest, accumulated accrued interest, Capitalized Interest (also called PIK interest), and original loan principal. Use it as a side-by-side reference when choosing which payment type to record. All payment types accept both positive and negative payment amounts; the negative paths mirror the positive paths with reversed sign bounds.

Prerequisites

  • Standard NetLoan access — all out-of-the-box payment types are bundled with NetLoan and require no additional setup.
  • The Decapitalization payment type requires NetLoan 2026.1.1.0 or later.
  • The Capitalize Deferred Interest payment type only has effect on loans configured with a Deferred APR.

Use Cases

Standard

The default payment type. Use it when recording a normal customer payment that should reduce the loan through the standard waterfall.

  • Positive amount: Pays current period interest first, then accumulated accrued interest, then Capitalized Interest (PIK), and finally original loan principal.
  • Negative amount: Increases original loan principal. Does not affect the Capitalized Interest (PIK) balance.

Defined Principal

Use when the user wants to specify the principal portion of the payment rather than the total. NetLoan grosses up the recorded payment to include current period interest plus accumulated accrued interest on top of the user-entered principal, so the payment covers all interest plus the stated principal amount.

  • Positive amount: Interest is paid in full each period; the user-entered principal portion reduces Capitalized Interest (PIK) first, then original loan principal.
  • Negative amount: Increases original loan principal. Does not affect the Capitalized Interest (PIK) balance.

Pay Off Remaining Interest

Use when the goal is to clear all outstanding interest as of the effective date without touching the loan balance.

  • Positive amount: Overrides any user-entered payment amount to be exactly current period interest plus accumulated accrued interest. Applies entirely to those two interest balances; Capitalized Interest (PIK) and original loan principal are both unchanged.
  • Negative amount: Reverses a prior Pay Off Remaining Interest payment by uncollecting interest. Capitalized Interest (PIK) and original loan principal remain unaffected.

Percentage of Principal

Use when the payment should be a fixed percentage of the outstanding loan balance rather than a fixed dollar amount.

  • Positive amount: NetLoan calculates the payment as the loan balance (original loan principal + Capitalized Interest) times the configured percentage, then runs the result through the Standard waterfall: current interest, accumulated accrued interest, Capitalized Interest (PIK), then original loan principal.
  • Negative amount: Increases original loan principal. Does not affect the Capitalized Interest (PIK) balance.

Decapitalization

Use when a cash payment should pay down Capitalized Interest (PIK) first, then current period interest, then original loan principal. This is the only payment type that pays Capitalized Interest before current period interest. Typical use case: a borrower who had been capitalizing interest resumes cash payments and needs to clear the PIK balance.

  • Positive amount: PIK → current period interest → original loan principal.
  • Negative amount: Increases original loan principal. Does not unwind the Capitalized Interest (PIK) reduction from a prior Decapitalization.

NetLoan — Record a Decapitalization Payment

Capitalize Accrued Interest

Use when accumulated accrued interest plus the current period's interest should be moved into the loan principal rather than collected in cash. No cash changes hands.

  • Positive amount: The accumulated accrued interest balance flushes to zero, and the corresponding amount is added to the Capitalized Interest (PIK) balance, increasing the overall loan balance. This is how Capitalized Interest is created.
  • Negative amount: Reverses the capitalization — moves the corresponding amount from Capitalized Interest (PIK) back into accumulated accrued interest. Used to undo a prior Capitalize Accrued Interest event.

Capitalize Deferred Interest

Use on loans configured with a Deferred APR when the accumulated deferred interest balance should be capitalized into the loan.

  • Positive amount: The entire accumulated deferred interest balance is added directly to the loan balance, and the deferred interest balance is zeroed. Unlike Capitalize Accrued Interest, the added amount is not separately tracked as Capitalized Interest (PIK) — it joins the loan balance generically. No effect on current period interest or accumulated accrued interest.
  • Negative amount: Reverses the capitalization — moves the corresponding amount from the loan balance back into the deferred interest balance.

Principal Adjustment Payment

Use when the payment should go directly to the loan balance, bypassing the interest waterfall.

  • Positive amount: Reduces Capitalized Interest (PIK) first, then original loan principal. If the payment exceeds the remaining balance and there's unpaid accrued interest, the overage applies to accrued interest.
  • Negative amount: Increases original loan principal. Does not affect the Capitalized Interest (PIK) balance. The same overage rule applies if the negative amount exceeds the loan's capacity in the negative direction.

Principal Adjustment Gain/Loss

Modification-driven payment type used to write off or forgive loan balance. The payment column itself stays at zero; the adjustment is recorded in a gain/loss bucket.

  • Positive amount (write-off / forgiveness): Reduces Capitalized Interest (PIK) first, then original loan principal. If the adjustment magnitude exceeds the loan balance, the overage applies to accrued interest.
  • Negative amount (add-back): Increases original loan principal. Does not affect the Capitalized Interest (PIK) balance.

Principal Adjustment Fee

Use to add a fee that becomes part of the loan balance.

  • Positive amount: The fee is stored in a separate add-fee column and increases the loan balance without specifically incrementing Capitalized Interest. It does not pay anything down — it's an addition to the loan, not a reduction.
  • Negative amount: Reduces the loan balance via the add-fee column. Treat as a fee reversal rather than a payment.

Pay Off Remaining Balance

A modification type that closes the loan. Pays interest as of the effective date and then closes the loan balance — both Capitalized Interest (PIK) and original loan principal go to zero.

  • Positive amount: Standard closure as described above.
  • Negative amount: Not a supported workflow — this is a closure modification. Reverse the closure via a Modification Reversal instead.

Fee

Use for fees that should be billed separately and do not affect the loan balance.

  • Positive amount: The fee amount is stored in a separate add-fee column and is invoiced or billed without changing the loan balance (neither original loan principal nor Capitalized Interest) or any interest balance.
  • Negative amount: Reverses the fee. No impact on loan balance or interest.

Non-Loan Payment Only

Use for amounts that should be tracked on the loan record for reporting but should not reduce the loan balance or interest — for example, escrow, insurance, or taxes collected alongside the loan payment.

  • Positive amount: Tracked separately on the schedule line's non-loan payment fields. No impact on loan balance or interest.
  • Negative amount: Reverses the non-loan tracking. Still no impact on loan balance or interest.

Considerations

  • Choosing the right payment type. For a normal cash payment that should follow the standard interest-first waterfall, use Standard. To pay down Capitalized Interest (PIK) before current period interest, use Decapitalization. To pay only interest without touching the loan balance, use Pay Off Remaining Interest. To set the principal portion explicitly, use Defined Principal. To pay a percentage of the loan balance, use Percentage of Principal. To adjust principal without flowing through interest (e.g., write-off, forgiveness, or a non-customer payment), use one of the Principal Adjustment types.

  • Positive and negative payments are not symmetric. Across all loan-balance-affecting payment types, a positive amount drains Capitalized Interest (PIK) before original loan principal, while a negative amount only increases original loan principal — the PIK balance is not unwound. Choose the payment type with this asymmetry in mind, especially when reversing prior payments or recording adjustments.

  • Don't confuse Pay Off Remaining Interest with Pay Off Remaining Balance. They sound similar but do very different things. Pay Off Remaining Interest is a payment type that clears interest only and leaves the loan balance intact. Pay Off Remaining Balance is a modification type that closes the entire loan.

  • Several payment types are accessed through modifications, not standalone payments. Capitalize Accrued Interest, Capitalize Deferred Interest, Decapitalization, Principal Adjustment Gain/Loss, and Pay Off Remaining Balance are typically applied via a loan modification rather than a direct payment record.

  • Capitalize Accrued Interest overrides the loan's capitalization frequency. Regardless of how the loan is configured for interest capitalization (Never, Period End, Daily, etc.), recording a Capitalize Accrued Interest payment forces capitalization for that period.

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