Changing the Borrower of a Loan

In specific circumstances, such as takeover or merged acquisition for SME customers, or divorce or inheritance for retail customers, the financial institution might have to perform a credit novation or cession. In other words, this means that an active loan contract should be altered by changing the borrower of that contract, effectively transferring to the new owner all benefits and burdens of the loan.

Loan Management allows you to perform such changes to contracts, either through the user interface, or by orchestrating these actions through API integration. In a few words, you can do this by creating a loan for the new owner and use its amount to repay the previous borrower's loan, which is then closed.

Follow the steps below to perform the changes needed in order to alter the owner in an active contract:

1. Check if the new owner is recorded as a customer in the system.
   If not, then create a new customer record for the new owner.

2. Verify if the new owner has at least one settlement account in the same currency as the existing loan contract.
   If not, create a new current account for them in the same currency, to be used as a settlement account in the new loan contract. Remember to approve the contract.

3. Make sure that the new owner has an available limit with an amount at least equal to the remaining amount of the existing loan contract for non-revolving loans, or at least equal to the total amount for revolving loans.
   If not, create and approve a limit for the new owner to cover the existing loan contract's needed amount.

4. Create a new loan contract for the new owner for the approved amount.

5. Disburse the required amount into the settlement account, if it didn't happen during contract approval (for auto-disbursed loans).

6. Use the amount from the new owner's settlement account to perform a withdrawal transaction.

7. Use the withdrawn amount to perform a top-up transaction into the settlement account of the original loan.

8. If there are overdue amounts on the previous loan, make sure the internal direct debit settlement account setting is active, so the missed notifications are automatically covered.

9. If needed, perform an early repayment to cover any outstanding notifications.

10. Close the loan contract belonging to the previous borrower.

11. If the previous borrower has no other active loans, you can close their available limits or decrease it.

12. Close the settlement account of the previous borrower.

13. In special circumstances such as bankruptcy, takeover and so on, you may consider retiring the previous borrower's customer record by changing its status to Blocked or Closed.

That's it! You've created a new loan contract for another borrower, and with the funds made available you've paid back all remaining amounts of the old loan. In the process, you've tied all the loose ends, closing settlement accounts, limits and even customer records. In the future, the new borrower has to repay the due amounts as specified in the new loan contract.