What Is a Payoff Letter?

A payoff letter is a document that provides detailed instructions on how to pay off a loan.

Key Takeaways

• A payoff letter is a document that provides detailed instructions on how to pay off a loan.
• If you have the funds to pay off an installment loan early, request a payoff letter from your lender. It tells you the amount due, where to send the money, how to pay, and any additional charges due.
• Payoff letters are needed as the exact amount due can change daily.
• You can also request a verbal payoff quote, but it's not legally binding.
• You may also receive a payoff letter that confirms you've paid off your loan.

What Is a Payoff Letter?

If you have the funds to pay off an installment loan early, request a payoff letter from your lender. It tells you the amount due (including interest charges up to a specific date), where to send the money, how to pay, and any additional charges due. Payoff letters help you avoid surprises by providing all the information you need in one place.

• Alternate name: Payoff statement

How Payoff Letters Work

When you want to pay off a loan all at once, it's challenging to predict exactly how much you need to pay.

Interest charges get added to your loan balance every day (or every month), so the amount you owe changes constantly. If you just try to write a check using the loan balance shown on your last statement, there’s a chance you’ll fail to pay everything you owe. The result will be frustrating; you’ll need to make phone calls, send additional payments, and wait longer than you expected to eliminate your debt.

To prevent problems, you can request a payoff letter and your lender will provide an official document with instructions on how to completely pay off the loan in one transaction.

Payoff letters generally supply the following information:

• The date the payoff amount expires
• Who to make a check payable to (and if a cashier’s check is required)
• Where to send the money
• Charges to include with your payment (outstanding penalties or account closing fees, for example)
• Adjustment amount if paying before or after projected payoff date

To get a payoff letter, ask your lender for an official payoff statement. Call or write to customer service or make the request online. While logged into your account, look for options to request or calculate a payoff amount, and provide details such as your desired payoff date.

Note

You only need to request a payoff letter if you’re paying off debt yourself. If you’re refinancing or selling your home, your new lender or a title company will most likely make the payoff letter request on your behalf.

Potential Fees

You may run into fees when you pay off a loan early. They may include:

• Generation fees: Expect to pay a modest fee for a payoff letter, but in some cases, the service is free. The cost might depend on how you get the letter—ask customer service for details. For example, some banks mail the document for free but charge a fee to email or fax it to you.
• Processing fees: You might also have to pay processing fees to pay off your loan. This is a charge from your lender for handling the payment and closing out the loan account.
• Prepayment penalties: Although relatively rare, prepayment charges still exist on some loans.

Spend a few minutes reading the fine print in your loan agreement or talking with customer service. Make sure you understand what it will cost to pay off the loan and that you send enough to close the account on your first try.

Alternatives to Payoff Letters

You can also request verbal payoff quotes from your lender. You won’t have an official and legally binding document, but you’ll have a rough idea of how much money you need on hand to pay off your loan. You can even move forward with payment based on a verbal quote, but if you got bad information, you won’t have any recourse.

Using a verbal quote is risky, but if you’re not worried about how long it takes to sort things out—and you can wait around while money gets shuffled and accounts get adjusted—a verbal payoff amount helps you get the ball rolling.

Types of Payoff Letters

Another type of payoff letter is a letter you get after you've successfully paid off a loan. This letter informs you the debt has been satisfied and it might help if you need to prove the loan no longer exists.

For example, if you’re selling a car you recently owed money on, your buyer might be reluctant to move forward if you don’t have a clear title. It can take lenders a while to remove liens and send titles, so this type of letter might keep things moving.

A payoff letter can also come in handy if you’ve got errors in your credit report. If a credit bureau is incorrectly reporting a loan as open that you’ve paid off, they’ll need documentation to remove that error. A letter from the lender helps you get errors removed.

Frequently Asked Questions (FAQs)

What is a payoff and release letter?

It's the same as a payoff letter, but it can be used when you're paying off a loan that involves collateral, such as a home or a car. In the letter, you are asking the lender not only to acknowledge that you've paid off the debt, but also to release the collateral, which could be a car title or deed to your home.

How long does a creditor have to send a payoff letter?

In most cases, a creditor has seven business days to send a payoff letter after it has been requested.

What is a 10-day payoff letter?

A 10-day payoff letter is a letter that is used when you are getting a new loan that will include an existing loan being paid off. For instance, if you are refinancing your car with a new lender, your new lender would send your existing lender a letter asking for the payoff amount on your loan plus 10 days' worth of interest. This would allow time for the new lender to payoff the old one.

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Consumer Financial Protection Bureau. “§ 1026.36 Prohibited Acts or Practices and Certain Requirements for Credit Secured by a Dwelling.”
2. Carvana. "What Is a 10-Day Payoff Letter and Where Can I Get It?"

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