A loan payoff letter is a document you can acquire at any stage of a loan, whether you’ve yet to make your first payment or just finished making your last. It includes all of the information you need related to how much you owe to your lender and the options you have for paying off your debt. There are payoff letters for practically every kind of loan — mortgages, student loans, and auto loans, to name a few — and there are several reasons you might need one. Here’s a quick, simple guide on what a loan payoff letter says, the reasons you’ll need it, and how to request one from your loan provider:
What It Says
A payoff letter gives thorough instructions on how you can pay off the entirety of a loan in the immediate future. It tells you how much you must pay by a target payment date in order to fully pay off your balance and all associated interest. If you do not pay off the balance before the target date, the account will accrue more interest, which means that the first amount listed will no longer be accurate. In this case, the letter will include a second amount, which tells you how much to pay if you’re unable to pay by the target date but still want to pay off your loan in the near future.
The letter will also have instructions for all acceptable methods of payment, including check or wire transfer. Any additional charges, like processing and account closing fees, that you might have to pay for will also be listed. One charge in particular, the prepayment penalty fee, is worth looking out for — oddly enough, this fee charges you a certain percentage of your balance for being responsible and paying off your loan in advance. Most lenders no longer carry this fee, but if yours does, you might want to reconsider paying off your loan early. Sometimes, this penalty will completely offset the money you could be saving in interest.
Lenders can also send you a payoff letter after you have finished paying off a loan. This letter serves as confirmation that your loan has been repaid in full, and your account has been closed. It’s most often requested so that customers can prove to other lenders that they have no other outstanding debts.
Reasons You’ll Need It
There are plenty of reasons you might need to request a loan payoff letter. Often, mortgage providers will ask for a loan payoff letter for any student or auto loans if you’re applying for a mortgage on a new home. That way, they’ll have a clear idea as to how much of your income is already tied up in loans. Similarly, if you’re trying to refinance your current mortgage, your new lender will need to see a payoff letter — in most cases, though, they’ll directly request a payoff letter from your current lender instead of going through you.
Finally, if you notice that a credit bureau is misrepresenting the status of a loan you’ve already finished paying off, you’ll almost certainly need to present a payoff letter to prove your case and have the error on your credit report fixed.
How to Request One
If you need a payoff letter for any of these reasons, you’ll need to contact your lender and request a payoff statement. Sometimes, these requests can be made online, but it’s almost always a better idea to pick up the phone and get a customer service agent on the line. The customer service representative can usually start by giving you a verbal payoff quote if you request it. This quote will give you a vague idea as to whether paying off the entirety of your debt in the near future is a feasible option.
If a full payoff is, in fact, within reach, you’ll then want to ask about any associated charges — like processing and prepayment fees — before finally requesting a physical hard copy of your payoff letter. Typically, these letters will come with a small “generation fee,” but sometimes lenders will waive the fee if you ask to receive a hard copy in the mail instead of having it faxed or e-mailed to you immediately.
Payoff letters are a crucial form of documentation, both for people who are still paying off loans and those who finally got over the hump. If you need one for any reason, reach out to your lender and ask that they send you a payoff letter as soon as possible. If all goes right, this could mark the beginning of a new, debt-free future.