If you’ve only ever had debt in the form of credit cards, you’ve probably never seen a payoff statement before. Unlike the nice grace periods of credit cards, there is no grace period when you’re talking about debt such as an auto loan, a mortgage, a student loan, or a home equity loan. Every minute that passes, that loan is accruing interest. That means when you check your account and it says that you owe $1,000; the moment you mail that check out, you actually owe a little more than $1,000.
Instead, what you should be looking for and getting is something called a payoff statement. It’s a document that will indicate how much you need to pay to completely pay off the entirety of the loan and that amount should be good until the end of the current billing cycle. When you send the check, it’ll actually be how much you would’ve owed at the end of the current billing cycle and the lender should credit you the different in interest once they receive the payment.
Sometimes you won’t need to request a payoff statement, your account will simply state that you need to send a check for $X.XX in order to pay off the debt. If your account does show that value, you should be all set once you send out the payment. If your account does not, you will have to call your lender and specifically request a payoff statement. If you do not, you’ll find that you’ll owe some additional interest because you missed it the first time around and that interest will accrue its own interest. It’s not the end of the world if you forget to request a payoff statement, essentially you’ll be dealing with a minor paperwork headache and paying out a little more interest unnecessarily.
So, remember to request that payoff statement!