How to Calculate a Loan's Payoff Date

If you've borrowed money and are paying it back at a steady rate, it's often useful to know how long it's going to take until that loan is fully paid off. Assuming that your payments and the interest rate stay steady, and you don't borrow any more money, you can figure out how long it will take to pay back that loan using a straightforward loan payoff formula or calculate the payoff date with an online calculator tool. Keep in mind that some loans may have prepayment penalties that will offset the advantages of paying more each payment cycle.

Sometimes when you borrow money, your loan agreement will specify how much you must pay each payment period, usually a month, and how long you have to pay the money back. This is typical for many types of loans like mortgage loans on a home or car loans to buy a vehicle. Even credit cards often include information in your billing statements about how long it would take to pay off your balance if you make differing levels of payment.

In those cases, you theoretically already know how much you will pay each month and what the final loan payoff date will be. However, you can often pay more each month to pay down the principal on the loan faster and end the loan term sooner. This will not only mean you'll have fewer bills to pay each month. It will also usually mean you'll owe less interest, since interest compounds each month based on how much you still owe.

The standard formula for a loan payoff time period involves the amount currently owed on the loan, the interest rate per payment period and the amount you expect to pay each month. Remember that if you make monthly payments on your loan and you're used to thinking about annual interest rates, you'll want to divide that interest rate by 12 to get the monthly interest rate. However, the formula doesn't address circumstances in which payments or interest rates change over time or where you borrow additional money on top of an existing loan, such as making new purchases on a credit card.

The formula is -1 * log(1 - r * a / p) / log (1 + r), where p is the monthly payment, r is the interest rate and a is the amount owed. The log function is the standard natural logarithm, which you can compute with most scientific calculators, calculator software or spreadsheet tools.

If you prefer not to plug numbers into the formula yourself, you can find a variety of loan payoff calculator tools online, including several from various financial institutions and financial news and information websites. You can use the formula and plug in various potential monthly payments to see how fast you will pay off your loan under different scenarios.

Many spreadsheet programs, including Microsoft Excel and Google Sheets, also include a function called NPER to calculate loan payment times. Check your spreadsheet program's documentation to see how this works.

Some loans carry what are known as prepayment penalties, which ensure that the lending institution will still collect a minimum amount of interest even if you pay off the loan ahead of schedule. Read the fine print when you take out a loan to understand if it has such penalties, and make sure to take them into account when you're deciding whether to pay off the loan early.

Also remember that many loans have penalties for not making a certain minimum payment each month, and that failing to do so can impact your credit rating. In general, make sure you understand the legal and financial consequences if you plan to do something other than pay back the loan at the standard schedule so that you don't get a surprise bill or see other penalties.