Pay off small installment loan in full, or apply to larger balance?

[avv7c0]

I have $2,500 available to apply to one of my installment loans. I have one installment loan for $2,200 and one installment loan for $10,000. I have no credit card debt (carry a small balance on one card, without accruing interest each month for score purposes).

Is it better for me to remove one loan completely, or create a wider gap between the original balance and balance owed on the larger loan?

[MarineVietVet]

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@avv7c0 wrote:

I have $2,500 available to apply to one of my installment loans. I have one installment loan for $2,200 and one installment loan for $10,000. I have no credit card debt (carry a small balance on one card, without accruing interest each month for score purposes).

Is it better for me to remove one loan completely, or create a wider gap between the original balance and balance owed on the larger loan?

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I would probably completely pay off the smaller loan but I would first consider the APR's on both loans as part of my decision. What are the APR's?

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[avv7c0]

Good observation. APR is same on both, however. 11.99%

[MarineVietVet]

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@avv7c0 wrote:

Good observation. APR is same on both, however. 11.99%

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Then I would still pay off the smaller of the two and be rid of it forever. But that's just me. Others I'm sure will have different views.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

I would pay off the smaller loan.

But that's just because I follow MVV around on the forums and agree with basically every thing he says. 

No, no.  JK.

I would pay off the smaller loan because it's not doing anything for your FICO to keep it open; and paying down the larger loan would have little to absolutely no impact (edging more toward the "no").  Installment balances just don't impact FICO much.  I've been tracking a few installment loans for DH and I, and I've yet to see a score increase during paydown.  YMMV.

I note also that FAKO sites will sometimes mention balances on your installments - but I have learned to ignore all FAKO advice.  In the land of FICO - the land that counts - paying down your larger installment is not highly likely to result in any FICO increases.

Also, paying off the smaller loan will impact your monthly payments - always a plus.

Congrats on being able to pay down those installments - even if you don't follow MVV's recommendation to pay off the smaller of the two. 

[stan_the_man]

Since installment utilization has very, very little impact on scores -- and the interest rates are the same -- I suggest paying off the smaller loan.

The reason why is that your credit picture will actually be a little better because you'll have a lower debt to income ratio (since one of your payments will now be gone); however, this will not impact your Fico score because it does not take into account your income.

I also suggest you pay the exact same amount you were paying combined for the two loans on the remaining loan until you snowball your debt away.

[MarineVietVet]

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@stan_the_man wrote:

Since installment utilization has very, very little impact on scores -- and the interest rates are the same -- I suggest paying off the smaller loan.

The reason why is that your credit picture will actually be a little better because you'll have a lower debt to income ratio (since one of your payments will now be gone); however, this will not impact your Fico score because it does not take into account your income.

I also suggest you pay the exact same amount you were paying combined for the two loans on the remaining loan until you snowball your debt away.

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An excellent idea.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Anonymous]

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@MarineVietVet wrote:

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@stan_the_man wrote:

Since installment utilization has very, very little impact on scores -- and the interest rates are the same -- I suggest paying off the smaller loan.

The reason why is that your credit picture will actually be a little better because you'll have a lower debt to income ratio (since one of your payments will now be gone); however, this will not impact your Fico score because it does not take into account your income.

I also suggest you pay the exact same amount you were paying combined for the two loans on the remaining loan until you snowball your debt away.

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An excellent idea.

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+1