Auto loans are secured loan programs. Therefore, to fully release the collateralized lien on a car, you need to pay a loan in full. Calculating a payoff can be a bit complicated, but fortunately, lenders are able to provide accurate payoff statements, too. However, it is best to understand the process so that you know there isn't an error in the lender's calculations.
Use the following formula to calculate a manual payoff: M = P ( J / 1 - [ 1 + J ] ^ -N ). Use the following variables: M = monthly payment; P = principal loan amount; J = interest in decimal form; ^ = exponent; and N = term of loan (in months). Divide the interest rate by 1200 to get interest in decimal form.
Enter the relevant terms of your loan into the formula. For example, if you had a $20,000 car loan for 60 months at 6percent interest, your formula would look like this: M = 20,000 ( .005 / 1 - ( 1 + .005) ^ - 60). So, for this loan, the monthly payment would be $386.60.
Multiply the monthly payment figure by the total remaining months on the auto loan. For example, if you made 14 consecutive payments on a 60-month loan, you would need only to multiply the monthly payment figure by 46.
Contact your lender and ask if there is any capitalized interest on the loan. Capitalized interest usually accrues if you've been late on any payments. This figure needs to be added to the figure calculated in Step 3.
Request an official payoff statement from your lender. Make sure your calculation matches the lender's calculation. If there are any discrepancies, make sure to call your loan officer to review the payoff statement.
