What is a payoff on a car loan?
I was looking at my loan balance online and noticed something labeled payoff. It was a large amount, but I'm not sure what it means. What is a payoff quote for a car?
There are a lot of vocabulary terms specific to car loans, so it’s understandable that you may not know what everything means!
When looking at your loan, the payoff is the total amount due to completely pay off your loan. It is typically less than the total you’d pay if you added up the payments you have left, as it doesn’t include any additional interest that would potentially accumulate during the rest of your loan term.
A payoff amount is most often used by car insurance companies or lenders if they need to know how much you owe on your car.
For example, if you get into an accident and your car is totaled, your car insurance company would calculate the actual cash value (ACV) of your car. Then, they’d consult with your lender to find out the payoff amount of your loan.
At that point:
- If your outstanding loan balance is less than your car’s value, you’d get the remaining money.
- If it’s more, the entire ACV would be put toward your loan and you’d be responsible for paying the remaining balance.
Similarly, if you’re trading in your car, the dealership would look at the payoff amount for your current loan. If the trade-in value of your car covers it, the dealership would pay off your loan.
If you’re interested in reducing the amount of interest you pay on your loan or would like to pay it off faster, consider refinancing. The Jerry app makes it easy to refinance your loan while finding you the best terms and conditions.
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