Have you ever thought you were almost done paying off a loan, only to call your lender and find out the amount you still owe is more than what you should have paid? If so, you’re not the only one. Borrowers are often caught off guard by this situation, leaving them scratching their heads and wondering what’s going on.
One big difference between your current balance and your payoff amount is the cause of the difference. To help you get the most accurate payoff quote, I’ll explain what each one means and why the payoff tends to be higher.
Current Balance vs. Payoff Amount: What’s the Difference?
First, let’s define each term:
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At any given time, this is how much you still owe on the loan. It includes the amount of money you borrowed plus any interest that has built up since the last time you got a statement. Your current balance changes monthly as you make payments.
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Payoff amount – This is the total amount needed to pay off the loan in full and satisfy the debt. It includes the current principal balance plus all interest owed through the payoff date.
Since interest is added to most loans every day, the amount you pay off will almost always be more than the balance shown on your monthly statement.
Here are some reasons why
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Accrued interest – Your current balance reflects interest only up to your last payment date But interest keeps accruing every day, so additional interest piles up between your last payment and the payoff date.
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Per-diem interest – Most lenders charge per-diem interest, meaning you owe interest through the specific payoff date. So if you payoff mid-month, extra interest accrues for the remaining days of that month.
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Fees or penalties – Some loans carry prepayment penalties if you pay off early. Late fees or other charges may also get tacked onto the payoff amount.
Bottom line – your current balance changes constantly, but the payoff amount must factor in every last penny owed through the day you actually pay off the loan.
How to Get an Accurate Payoff Quote
Because the payoff amount fluctuates daily, it’s risky to estimate or rely on old statements. To get an exact payoff figure, you should directly contact your lender or loan servicer.
Here are some tips for doing this:
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Request the payoff quote in writing 2-3 weeks before your target payoff date. This builds in time to collect the funds.
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Specify the date you want the quote effective through. Having an end date ensures all interest through that day is captured.
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Re-confirm the payoff a few days before paying. This locks in any last-minute interest.
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Submit payment immediately once you have the final figure to avoid further interest gains.
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Ask if any extra fees apply for processing the payoff payment.
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Follow up to ensure they received payment and cancelled the lien/title.
With mortgages, lenders are required to provide an accurate payoff statement within a reasonable time of request. This regulation doesn’t apply to other loan types, but most will oblige if you ask.
One final note – requesting a payoff quote does NOT commit you to following through. If you change your mind, you can simply keep making regular monthly payments. Just be aware the payoff amount can fluctuate day to day.
Real Life Examples of Payoff vs. Balance
To illustrate how the payoff amount exceeds the current balance, let’s walk through some scenarios:
Mortgage Payoff
- Current balance on May 1 statement: $98,000
- Payoff quote on May 18 for payoff on May 25: $98,325
- The payoff is $325 higher due to 18 days of per-diem interest accruing from May 1 through May 25.
Auto Loan Payoff
- Current balance on June 5 statement: $7,850
- Payoff quote on June 22 for payoff on June 28: $7,915
- The $65 difference reflects 17 days of per-diem interest.
Credit Card Payoff
- Current balance on August 9 statement:$2,410
- Payoff quote on August 25 for payoff on August 31:$2,428
- In addition to 22 days of interest, the payoff includes a $15 late fee from a missed payment in July.
As you can see, the payoff amount rises quickly as interest piles on day by day. Even waiting an extra week or two can add a fair amount to your payoff figure.
Key Takeaways
While it may seem counterintuitive at first, there are good reasons why your loan payoff quote exceeds your current balance. The key is understanding that the payoff includes all interest accrued up to the date you actually make the final payment.
Always get a fresh payoff quote right before you pay off any loan, and be prepared for it to be higher than your balance. Following these best practices will ensure there are no surprises at payoff time!
Why Is the Payoff Amount Higher?
[01:36] The biggest reason your payoff amount is higher is daily accrued interest.
Your mortgage interest is paid in arrears—meaning the payment you make this month is covering interest from the previous month. If you’re paying off your loan mid-month, you need to cover the extra days of interest that haven’t been paid yet. Any outstanding fees or escrow adjustments might also be included.
For example:
- Your last statement balance: $200,000
- You request a payoff quote on the 10th of the month
- The lender adds 10 days of accrued interest
- Your payoff amount is now higher than your last statement balance
Why Timing Matters in Mortgage Payoffs
[05:09] Your exact payoff amount depends on the date you send the final payment.
- If you pay off your mortgage on the first of the month, your additional interest might be minimal.
- If you pay off your mortgage on the 15th or later, you could owe more because daily interest is still accruing.
Some borrowers are caught off guard when they see the payoff amount change because they didn’t account for the extra interest.
How Do I Get Rid Of A Car That’s Worth Less Than What I Owe?
FAQ
Why is a payoff amount higher than a balance?
The payoff amount is generally higher than the current loan balance because it includes interest added to the loan between the statement date and the payoff date, as well as any other fees allowable by the loan documents. What is the difference between balance and payoff amount?.
What is a payoff amount?
Your payoff amount is different from your current balance. Your current balance might not reflect how much you actually have to pay to completely satisfy the loan. Along with the amount you pay off, you also have to pay any interest you owe until the day you pay off your loan.
Why is my loan payoff higher than my balance?
Your balance may be less than the amount you owe on your loan because it includes interest that you will have to pay in the future, fees that you haven’t paid yet, and other costs that you haven’t paid for yet. This means that your balance may not accurately reflect the amount you need to pay to fully satisfy your loan.
What causes a higher payoff amount?
Why the Payoff Amount Can Be Higher Several factors can contribute to a higher payoff amount: Accrued interest: Interest continues to accrue daily, so the payoff amount will be higher than your current balance even if you make regular payments. Prepayment penalty: If your loan has a prepayment penalty, it will be added to the payoff amount.
What is a payoff amount on a home loan?
Your current balance might not reflect how much you actually owe to completely satisfy the outstanding loan balance. Your payoff amount includes the payment of any interest due through the day you intend to pay off your loan. It may also include other fees you have been charged and have not yet paid.
What is the difference between current balance and payoff amount?
Current Balance vs. Payoff Amount: The Difference Your current balance is the amount you owe on your loan at any given time. It includes the principal (the amount you borrowed) and any accrued interest. Your payoff amount, however, is the total amount you need to pay to completely satisfy the loan. This includes: Why the Payoff Amount Can Be Higher.
Can I negotiate my payoff amount?
Yes, you can and should negotiate with the lender to find a solution that works for both of you. That might mean negotiating a settlement amount that’s smaller than your remaining balance, but it can also involve arranging a payment plan that works for your budget and the lender’s bottom line.
Why is my car payoff amount going up?
In general, the amount toward principal will gradually increase. This is because interest is charged on the outstanding balance each month. If the number of days since the last payment changes, you can see some changes in it going up.
Why is my balance higher than my loan amount?
Variable interest rates, interest capitalization, and fees and penalties are a few factors that could increase the amount owed on a loan. Borrowers could use tactics like making extra payments, paying more than the minimum amount or seeking out loan forgiveness to potentially decrease the total loan balance.
Why is my car loan amount higher than my purchase price?
An auto loan rate, also called an APR (annual percentage rate) is a percentage rate that is added on to the total amount of the purchase price of your car and includes both the interest rate and any fees for the loan. That is why a car loan is more than the purchase price of the vehicle.