MATH & FORMULAS
Loan Payoff Interest Formula
Learn how to calculate payoff interest through a specific date using outstanding principal, daily simple interest, and a 360- or 365-day basis.
How to calculate interest through a payoff date
For a fixed-rate simple-interest loan, start with unpaid principal after the last posted payment. Determine the interest-accrual start date, the target payoff date and the day-count convention in the note.
Total estimated payoff = principal + unpaid interest + payoff interest + contractually valid fees
Worked example
Suppose outstanding principal is $12,000, the annual fixed rate is 9%, and 20 calendar days of interest remain to be accrued. On Actual/365, the interest is $12,000 × 0.09 × 20 ÷ 365 = $59.18. Before fees and earlier unpaid interest, the balance plus added interest is $12,059.18.
Three common pitfalls
- Payoff date: confirm whether interest includes the payoff date; lender cutoffs can vary.
- Day-count basis: Actual/360 and Actual/365 produce different figures.
- Unpaid interest and fees: a payoff quote may include other amounts not present in a simple-interest calculation.
Calculate a payoff
Use the existing Payoff Statement Builder or the Payoff Per Diem Calculator to run numbers through a date. If the actual loan history is irregular, consider Loan Reconciliation & Payoff Pro.