A payoff letter (or payoff statement) is a document that details how you can pay off a loan. You can request one from your lender without the obligation to follow through with a payoff. But if you want to proceed, the letter will have all the details you need to pay off the right amount.
Borrowers can request payoff letters for all sorts of debt including an auto loan, mortgage, student loan or personal loan. They differ from current monthly statements (which quote the current balance due) in that they include any additional interest, fees and benefits that impact the loan amount when repaid by the requested date.
Payoff Letter Types
There are a few types of payoff letters.
- Payoff letters for existing loans: You request one of these when you want to pay off an existing loan or otherwise need the information the letter contains. An example would be a mortgage payoff letter.
- Payoff and lien release letters: This payoff letter acknowledges that you have successfully paid off a collateralized loan and that the lender has released the lien on your property (i.e., your car title or home deed).
- X-day payoff letters: The "X"stands for the number of days of additional interest (typically 10, 15 or 20) needed to pay off the remaining balance. For example, a 10-day payoff letter specifies the total amount due, including 10 days of additional accrued interest you must pay to close a loan.
Payoff Letter Contents
In general, payoff letters contain certain information:
- the lender’s name and the address to which you send the payment
- the loan account number
- the payoff quote amount
- the payoff date, which is the last date on which the quoted payoff amount applies
Payments made after the payoff expiration date require adjustment or a new payoff letter.
The loan balance components include the exact amount of the principal balance, interest, closing fees, prepayment penalties, rebates and any adjustments for paying before or after the quoted payoff expiration date.
Optional items sometimes included are the interest rate, the amount of interest rebated due to early repayment, the money you will save by paying early and the remaining payment schedule.
The payoff letter will contain detailed instructions on paying off the loan including mailing addresses, types of acceptable payments (for example, a mortgage loan may require a cashier’s check) and how to arrange an electronic payment.
Requesting a Payoff Letter
You can request a payoff letter from any lender at any time. The request should be in writing to preserve your legal rights, but many lenders will provide the payoff information over the phone. You can request the letter by calling or writing to the lender’s customer service department, or by sending the request online. The lender may have a webpage that fields payoff letter requests and/or an email address you can use.
Include the following in your request:
- your contact information: name, address, phone number and email address
- the loan number
- the type of loan
- the date on which you’d like to make the payment
- additional pertinent information such as a request to refinance your current loan
Many lenders offer online payoff calculators that estimate the amount you must pay to close the loan.
Federal law specifies that most creditors must dispatch a payoff letter no later than seven days after receiving the request. Some lenders may also provide the information online.
Once you receive the payoff letter, you can use it to pay off the loan or for some other reason.
- Refinance: You can refinance your home or car by repaying an existing payoff amount using the funds from a new lender. This is the typical use case for an X-day payment letter as it gives the lender the time to set up the refinancing.
- Proof of payoff: It will show that you repaid the debt.
- Debt consolidation or debt relief
You may receive an unsolicited payoff letter from a collection agency or lien holder if you are past due on a payment. The letter explains how to stop further collection action. Failure to repay can result in a car repossession or home foreclosure.
Eric Bank is a senior business, finance and real estate writer, freelancing since 2002. He has written thousands of articles about business, finance, insurance, real estate, investing, annuities, taxes, credit repair, accounting and student loans. Eric writes articles, blogs and SEO-friendly website content for dozens of clients worldwide, including get.com, badcredit.org and valuepenguin.com. Eric holds two Master's Degrees -- in Business Administration and in Finance. His website is ericbank.com.