For most people, buying a car means getting a loan, which they will be obligated to make monthly payments on for several years. That doesn't mean, though, that the borrower is going to do that. Somewhere along the line, he or she is likely going to pay off that debt before the loan term ends. There are a number of reasons for this, the most common being that the borrower is ready to get rid of the vehicle and buy a new one. Whatever the reason, paying off a car loan early will require contacting the lender and finding out just exactly how much is owed.
The Balance on Your Last Statement Doesn't Represent What's Owed Currently
The main point of getting a payoff request is to find out how much you are going to pay off, which may make you wonder why you can't just check your last statement's balance. The reason is that the balance on your last statement indicates what you owed on the date it was issued, not what you owe at the present moment.
Remember, you've been accruing additional interest in between, and your lender is going to require that pay that extra cost along with the amount owed from that last statement. You may additionally have to cover the costs of related fees and, possibly, a penalty for early car loan payoff. To determine whether or not you will owe fees or penalties, check your loan agreement. Or you can wait for your lender to send you the payoff quote, which will include everything you'll owe.
The Payoff Request
Here's where the payoff request comes in. As the borrower, you will have to contact your lender and ask for a payoff price. It used to be that you had to call your lender, make the request, and then wait for the lender's written response to arrive in the mail. Or you might visit your agent's office to make the request and get the response. Both options are still available but, as you can probably guess, the internet has supplied a third option. If your loan is with a major lender, you should be able to go to its web site and request your payoff amount. The lender's response will be immediate, and you will be able to print it out if you want.
Timing Your Payoff
Once you have your payoff amount, you should think about getting it done as soon as possible. A lender may give you a solid payoff number and due date (often seven to ten days). In some cases, the amount you will end up paying will depend on the exact day the payment is made. The main reason is that the stated payoff amount remains fluid. If, for example, you wait a week or two, that's another week or two of interest payments you're going to have to pay. So, completing the payoff sooner is almost always better than later.
Making the Payoff
Getting the payoff money to your lender is the next step. There may be a few options, but in most cases, you will have to send them a check. The sooner they receive and process your payment, the sooner you will get your vehicle title, so you might want to consider a cashier's check and/or delivering it to them by overnight or two-day mail.
Normally, the lender is responsible for notifying the DMV of the loan payoff and transfer of ownership. You are then at the DMV's mercy regarding how long they will take to issue the new title. Remember to get in touch with your insurer, also, and let them know that you now own your vehicle free and clear.
One other point. If you make a car loan payoff request to your lender, you are simply asking them to give you a payoff price. You're not contracting with them to pay off your car; you're simply getting a quote that you can make use of or not. If for some reason you don't like it, you can always say no and keep making your payments as you've been doing all along.
Can You Negotiate?
You might think that the loan payoff amount is set in stone. But there is definitely room to negotiate — and you don’t need to go into bankruptcy to do it. It is definitely worth calling your creditors if your financial situation is difficult.
If you’re close to default, your creditor might be willing to accept a much lower amount than your statement reads.
If you are in a tight spot, it is worth speaking with a credit counselor before you panic. The National Association for Credit Counseling is a non-profit that helps you get a handle on your financial situation and make a plan to pay off your debts.
Frequently Asked Questions (FAQs)
How long is a payoff quote good for?
Not all payoff quotes are valid for the same amount of time, so check with your lender to learn more about how long your quote's accuracy will last. For example, Chase lets you choose your payoff quote's good-through date up to 30 days in the future.
Why did my payoff quote go up since my last payoff quote?
Interest accrues whenever you have a debt. If you didn't make a payment, or if you only made a small payment, your newest payoff quote may reflect the costs of interest accruing on your account. To see your payoff quote go down, you'll need to make a large enough payment to cover interest costs and reduce your principal.