How do I Figure Payoff Time Knowing the Interest, Principal & Monthly Payment?

It pays to know how to calculate loan payoffs. Knowing the terms and conditions you can calculate the payoff for a mortgage loan, automobile loan, credit card, home equity line of credit or personal loan. A payoff figure can change from day to day depending on the terms. Finance charges accrue daily, and a high interest rate will increase your payoff total faster than a lower rate.

Instructions

1

Locate all of the terms and conditions of your loan. For example, if you have a five-year loan in the amount of $10,000 with an interest rate of 6 percent and monthly payments of $193.33, you can calculate a payoff.

2

Calculate the amount of interest that accrues when the first payment is made. Suppose a payment of $193.33 is made on May 1. Determine the breakdown of principal and interest. Take the balance of $10,000 and multiply it times the interest rate of 0.06. Your result will be $600 which should be divided by 12 months to get $50. This is the interest for the first month.

3

Subtract the interest of $50 from the payment of $193.33. The result is $143.33, which represents your principal payment. Now subtract $143.33 from the balance of $10,000. The new balance is $9,856.67.

4

Determine when the loan will be paid off. If you want your loan to be paid off on June 10 you need to figure out how much interest accrues from May 1 to June 10. This time frame represents 40 days.

5

Calculate a payoff figure for June 10. Take the interest rate of 0.06 and divide by 360 days, (assuming each month has 30 days for simplicity), and multiply your result by 40 days, (time since the last payment was made to the payoff date), and you will get 0.006664. Multiply your current balance of $9,856.67 times 0.006664. This calculation provides you with the amount of interest that accrues for 40 days which is $65.68. Add the interest to the balance of $9,856.67 to get the payoff of $9,922.35.

6

Figure out the per diem. Divide the interest figure of $65.68 by 40 to get 1.642. Interest accrues in the amount of $1.642 daily based on the current balance. For each day that the payoff arrives after June 10 add an additional $1.642 to the payoff balance.