Short answer: the balance on your statement is what you owed on a past date. The payoff amount is what it takes to close the loan on a specific future date: it adds the interest that builds through the day you pay and any fees charged but not yet paid (CFPB). That is why a payoff quote is higher, and why it comes with a date. The CFPB says a payoff quote is generally good for several days (CFPB).
What goes into a payoff amount
| Part | Why it is there |
|---|---|
| Principal balance | What you still owe on the loan itself |
| Interest to the payoff date | Interest due through the day you pay off the loan (CFPB); on a simple interest loan it builds every day since your last payment |
| Unpaid fees | Fees you have been charged and not yet paid, such as a late fee (CFPB) |
| Prepayment penalty, if any | Only if your contract has one (CFPB); see prepayment penalties |
On a precomputed interest loan the math is different: the payoff is the scheduled balance minus a rebate of unearned interest. That is explained in precomputed interest and the Rule of 78s.
Worked example
Example only, our calculation: a simple interest loan with a $6,000.00 principal balance after the payment on October 15, at 15% APR, and a $25.00 late fee from earlier that was never paid. Daily interest is $6,000.00 x 15% / 365 = $2.47.
| Item | Amount |
|---|---|
| Principal balance (what the statement shows) | $6,000.00 |
| Interest, October 15 to November 3 (19 days x $2.47) | $46.93 |
| Unpaid late fee | $25.00 |
| Payoff amount, good through November 3 | $6,071.93 |
If the money arrives 3 days late, on November 6, about $7.41 more interest is due, for $6,079.34. Send exactly the quoted amount after the good-through date and the loan may stay open with a small balance, which can keep building interest or fees.
How to pay off cleanly
- Ask the lender for a payoff amount in writing, good through a date you can meet, and ask how it counts days.
- Ask how to pay so the money arrives in time, and whether a regular automatic payment due before then will still be pulled.
- If you are refinancing and the new lender pays the old loan directly, make sure it uses a current quote. See refinancing a personal loan.
- After paying, ask for a letter or statement showing the loan is paid in full, and for a refund if you overpaid.
- A month or two later, check that your credit reports show the loan as paid; see check your credit report.
Is there a deadline for the lender to send it?
For loans secured by your home, yes: the creditor or servicer must send an accurate payoff statement as of a specified date within a reasonable time, and no more than seven business days after your written request (12 CFR 1026.36(c)(3)). That rule covers mortgages and other dwelling-secured loans only. For an unsecured personal loan, your contract and state law govern, so ask early and in writing.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.