Written byA payout is the total amount needed to close a loan or lease on a given date: the balance owing, accrued interest and any break costs or fees.
Also known as: payout figure, loan payout, pay-out, net payout
Key points
- Ask the lender for a payout figure and it will quote the balance owing, interest to the date you nominate, and any fees.
- The quote only holds to that date, because interest keeps accruing, so a later settlement needs a fresh figure.
- On fixed rate finance the payout can include break costs, and a balloon payment or residual is part of it too.
- Payout figures are used when refinancing, selling the asset or arranging an early settlement, after which the lender releases its security.
- The word is also used for insurance claims, legal settlements and redundancy payments, where the net amount is what lands after deductions.
How a loan payout works
When you want to finish a loan or lease before the end of the term, you ask the lender for a payout figure. You nominate the date, and the lender works out what it would take to close the account on that day: the balance still owing, interest accrued to that date, and any fees the contract allows it to charge. The figure comes in writing, and it is only good until the date you asked about.
Pay it and the loan is closed. The lender then discharges its security, which on a car or equipment contract means removing its interest from the PPSR so the asset can be sold or transferred clear. Miss the date and the figure has to be requoted, because another few days of interest have run.
What a payout figure includes
Most payout figures are built the same way. The principal still outstanding is the largest part. Interest is added up to the payout date, and on a fixed rate contract there can be break costs, which reflect what it costs the lender to unwind its own funding. Contracts often add a discharge or administration fee, and on a lease or a loan with a balloon, that final lump sum forms part of the payout as well.
A quote should itemise each line, so you can see what is balance, what is interest and what is a charge. On regulated consumer credit the way an early termination amount is worked out has to be set out in the credit contract, so the statement can be read against it. If a line is unclear, ask the lender to explain it before you pay.
Payouts at refinance or sale
A payout figure is the pivot point in most refinances. The new lender needs it to know how much to advance, and it pays the old lender directly on the settlement date rather than putting the money in your account. If the figure expires before settlement, the broker or lender orders a fresh one.
Selling a financed asset works the same way. The sale proceeds, or your own cash, clear the payout first, the lender releases its security, and only then can clear title pass to the buyer. Businesses selling a truck or a machine usually ask for the payout early, because the figure can be more than the asset is worth and that gap has to be covered from somewhere.
Other kinds of payout
Outside lending, a payout is a lump sum paid under a policy, agreement or award: an insurance claim, the settlement of a dispute, a redundancy or termination payment, or a superannuation lump sum. What is paid usually turns on a trigger the policy or contract names, and on the documents the payer asks for before it releases the money.
The net payout is what lands after deductions such as an excess, legal costs, administration fees or tax. Tax follows the character of the payment, so compensation for lost income can be assessable while some personal injury compensation is not, and superannuation lump sums have rules of their own. Check the ATO's guidance or ask a registered tax agent.
Example
A courier decides to sell the van he financed, two years into a five year contract. He asks the lender for a payout figure as at the end of the month. The quote comes back as the balance owing, interest to that date and a discharge fee, and it states that the figure holds only to that date. The buyer's payment covers it, the lender is paid, and it removes its security interest from the PPSR so the van can be transferred clear. Because settlement slips by a week, the courier asks for an updated figure, which comes back a little higher than the first.
Not to be confused with
- Early settlement
- early settlement is paying a loan out before the end of its term, whereas the payout is the figure that closes it
- Break costs
- break costs are one line in a payout on a fixed rate contract, not the whole figure
- Settlement
- settlement is the day the money moves and security is dealt with, whereas the payout is the figure that has to be paid to close the contract
Frequently asked questions
How do I get a payout figure?
Ask the lender, in writing or through its app, and nominate the date you want to settle. It sends a statement showing the balance owing, interest to that date and any fees. Most figures are valid only to the nominated date, so line up your settlement date before you request one.
What is included in a loan payout figure?
The balance still owing, interest accrued to the payout date, and any fees the contract allows, such as a discharge or administration fee. On fixed rate finance it can also include break costs, and on a lease or a balloon contract the final lump sum forms part of it.
How long is a payout figure valid?
Usually only to the date you nominated, because interest keeps accruing daily. If settlement moves, ask for an updated figure rather than paying the old one. A short payment can leave the account open and the lender's security still registered against the asset.
Do I pay break costs on a payout?
Only on fixed rate finance, and only where the contract provides for it. Break costs reflect the lender's cost of unwinding its funding, so they depend on the balance being repaid, the time left on the fixed term, and where market rates have moved since you fixed.
Are payouts taxable?
It depends on what the payment is for. Compensation for personal physical injury is often non-assessable, while compensation for economic loss such as lost income may be assessable as ordinary income. Insurance proceeds and superannuation lump sums follow their own rules. Check the ATO's guidance or speak with a registered tax agent.
Related terms
Early settlement
Early settlement is paying a loan or lease out in full before the end of its term using the lender's payout figure, or bringing a property settlement date forward.
Read definitionBreak costs
Break costs are the charges a lender passes on when a fixed rate loan is repaid or changed before the fixed term ends.
Read definitionRefinancing
Refinancing is replacing an existing loan with a new one, from the same or a different lender, to change the interest rate, term or features, or to release equity.
Read definitionBalloon payment
A balloon payment is a lump sum, agreed upfront, that is paid at the end of a loan term and lowers the regular repayments by deferring part of the principal.
Read definitionSettlement
Settlement is the final stage of a finance deal, where the lender releases funds, security is registered and you take delivery of the asset.
Read definitionFees
Fees are the explicit charges a provider applies for a financial product or service, separate from interest and covering access, administration or transactions.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.