How to Calculate an Early Pay Off of a Personal Loan

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Paying off a personal loan early can save you money by limiting the amount of finance charges you pay. To calculate an early payoff, you will need to know the remaining balance and the interest rate. You can use a loan calculator to get the payoff amount. Your loan term can be shortened substantially when you pay off a personal loan early. The monthly payments you save can be used to pay other debts, or for savings or investing.


Step 1

Find out the remaining balance on your personal loan. Once you get your outstanding balance, you can begin to calculate the payoff amount. Take the annual percentage rate and divide by 360 days, times the number of days since the last payment was received to the payoff date, times the balance. If your personal loan balance is $3,500 and the interest rate is 7 percent and it has been 14 days since your last payment and you want to pay off your loan in 10 days you can calculate your payoff.


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Step 2

Do the calculations. Take 7 percent, for example, and divide by 360, times 24 days for the payoff, times the balance. If you last made a payment on December 1 and today is December 15 (14 days since you last paid), and you want to pay your loan off on December 24, you will need to add interest in the amount of $15.64 to the balance. This represents 23 days of interest. If you last paid on December 1, interest has already been calculated up to that point and it was paid from your last payment. Interest accrues daily from December 1 to December 24. Your total payoff is $3,515.64.


Step 3

Make sure you have enough time to get your payment to its destination. If today is December 15 you should have plenty of time to get your payoff to the lender by December 24, even if you are mailing it. If your payment is received early, the lender may owe you a balance refund which will be 65 cents for every day the payment is received prior to December 24. If you are making your payment online, you can probably submit it the same day it is due. Any payment received after the payoff date of December 24 means that you will owe more money. You will need to pay 65 cents for each day your payment arrives after December 24.


Step 4

Wait for written confirmation. The lender will cash your check and send you a copy of your promissory note stamped paid. This will serve as proof that you paid off your loan. A canceled check can also be used as proof.