Loan Tiered Rates: Motivating Members to Use That Line of Credit

What do you do when a member uses the credit union's time and resources to set up a $50,000 line of credit Home Equity loan, and then only borrows $3,500 over the life of the loan?

Once a credit union's line of credit lending program takes off, the key to its continued success is no longer getting the members in the door and signed up, but rather getting members to use their available credit.

Market, market, market! How about giving the member a rate incentive?

With the CU*BASE Loan Tiered Rates feature, a member's loan rate can be adjusted automatically every time a payment change is calculated. This software, configured at the loan category level, will evaluate the member's current loan balance and assign the rate according to the balance—the higher the balance, the lower the rate. This gives members a dollars-and-cents incentive to use more of the line of credit that is already waiting for them at the credit union.

Configuration Considerations

  • Loan Tiered Rates can be used with payment change calculations that are based on either a fixed number of payments or a fixed maturity date only. This is because these two calculations actually use the interest rate when determining the new payment.

  • Loan Tiered Rates can be set up so that payments are changed only if the payment is increasing. This feature lets you increase or decrease the rates earned without always changing the member's payment.

  • The Loan Tiered Rates feature is recommended where payment changes are recalculated on disbursements only, not all transactions. The frequency of payment and rate changes on all transactions might be difficult to track as well as confusing to both members and staff.

  • The notice event generated whenever payment changes are made is called PAYCHG. This event should be included on one of your credit union's configured laser notices if you wish to notify members of rate changes as a result of this tiered configuration.

Configuring the Loan Category

Tiered Rates are configured from the final screen in Loan Category Configuration.

To use Tiered Loan Rates, first be sure that the Change activated on field is set to “D” for Disbursements only. Check the Use tiered rates in payment recalculation field, then use Tiered Rates (F14). Then use the Tiered Rates window shown to set up the rates.