What Is a Payoff Request and When Do You Need One?
Understand what a payoff request is, why it's crucial for accurately satisfying a loan, and how to obtain this vital financial document.
A payoff request is a formal document from a lender that states the precise amount needed to fully satisfy a loan obligation on a specific date. This statement ensures accuracy when a borrower intends to pay off a loan entirely. It serves as an official figure, preventing discrepancies that can arise from relying solely on a regular monthly statement.
Understanding the Payoff Amount
The amount listed on a payoff request often differs from a typical current balance shown on a monthly statement. This difference occurs because the payoff amount provides a comprehensive calculation for complete loan satisfaction. A payoff amount generally includes the outstanding principal balance, along with any interest accrued up to a specific future date. This accrued interest is commonly referred to as “per diem” interest, which represents the daily interest that accumulates on the loan.
Per diem interest is calculated by dividing the annual interest rate by 365 days and then multiplying it by the number of days between the last payment and the requested payoff date. This daily accrual means the total amount owed changes each day, making the time-sensitive nature of a payoff quote important.
The payoff amount also incorporates any outstanding fees, such as late fees, processing fees, or even prepayment penalties if applicable to the loan agreement. Some lenders may charge a small fee for generating the payoff letter itself. The payoff request will specify a “good through” date, which is the date until which the quoted amount remains valid. If the payment is not received by this date, the amount will change due to additional accrued interest, requiring a new payoff quote.
When a Payoff Request is Necessary
A payoff request becomes necessary in several common financial situations where an exact loan figure is required for a complete transaction. One frequent scenario is when selling a property, such as a home or vehicle. The precise payoff amount ensures that the existing loan is fully cleared at closing, allowing for the transfer of a clear title to the new owner.
Another common instance is when refinancing an existing loan. New lenders typically require a payoff statement for the current loan to determine the exact amount needed to pay it off, facilitating the new financing arrangement. Borrowers also need a payoff request when making an early, lump-sum payment to fully satisfy a loan ahead of schedule. Having the exact figure helps avoid overpaying or underpaying, ensuring the loan is closed correctly and any associated liens are released.
How to Get a Payoff Request
Obtaining a payoff request involves contacting your loan servicer. Borrowers can typically initiate this request through various methods. Common contact options include calling the lender’s customer service, using an online portal if available, or sending a written request via mail or fax.
When making the request, borrowers will generally need to provide specific identifying information, such as the loan number, full name, property address if applicable, and the exact intended payoff date. Lenders are typically required to provide a payoff statement within seven business days of receiving a written request, though some may deliver it faster. The statement can be delivered by mail, email, or through an online portal. Upon receipt, it is important to note the “good through” date on the statement, as this indicates the deadline for the quoted amount to be valid.