topic Re: How to handle paying off a loan? in Rebuilding Your Credit

How to handle paying off a loan?

Mad12345 — Thu, 07 Jan 2021 19:31:52 GMT

I have a personal loan with Navy Federal for ~$8700. I am concidering paying $6000 toward the loan this month, or should I pay $1000 for 6 months plus the $255 payment. What's the best way to bring the loan down and bring my score up at the same time?

Re: How to handle paying off a loan?

RSX — Thu, 07 Jan 2021 20:03:05 GMT

drop the full amount on it right away - you should see a solid score jump as you drop below the known percentages

what was the original loan amount? then i can calc the % you will be at

Re: How to handle paying off a loan?

Mad12345 — Thu, 07 Jan 2021 20:19:56 GMT

I just got the loan. It's at $8674.00. They refinanced a high interst loan for me.

@RSX wrote:
drop the full amount on it right away - you should see a solid score jump as you drop below the known percentages
what was the original loan amount? then i can calc the % you will be at

Re: How to handle paying off a loan?

RSX — Thu, 07 Jan 2021 20:32:55 GMT

so it is currently at 100% - which from a new account/inquiry/maxed account would have dropped your score

which is fine - always better to pay less interest - you made the right move

so you will be dropped from a Maxed account to a 30% utilized loan, after the $6k paydown

you will see a score jump the following month for sure

then likely another jump after your next payment of $255, since that will drop you below 29%

the next score improvement will be once you drop below 9% - so when the outstanding will be at $770

Re: How to handle paying off a loan?

Mad12345 — Thu, 07 Jan 2021 20:37:14 GMT

Thank you for your help. I appreciate you taking the time to answer my question. Navy Federal and this forum has been a godsend for me.

Re: How to handle paying off a loan?

RSX — Thu, 07 Jan 2021 20:50:38 GMT

i did have one other comment - just for the future

if you have a high interest loan, sometimes just paying extra is the best way to lower your overall interest cost on the loan

so if you had the $6k before you refi'd, you might have been better off just crushing down that higher interest rate loan instead of getting a new account

if it was a surprise, after you refi'd = all good

but i have done this myself, and afterwards i sometimes realize i should have just kept the original loan, and made higher payments, instead of dealing with getting a new account on my file - a new inquiry, and sometimes an origination fee for a loan

i would always do the math and would come out ahead - but by how much $ is sometimes the factor - maybe not worth it if is too close

anyway - carry on with your current plan, and you will be in good shape from a score point of view

Re: How to handle paying off a loan?

Mad12345 — Thu, 07 Jan 2021 20:57:09 GMT

I didn't think of in those terms. Thanks again. I got the original loan from One Main right after I got out of bankruptcy last year. I was making the payments, but the balance wasn't going anywhere. It was the first account for me after ch13. I got a few CC and my score started to rise, so I applied for Navy Federal membership ( they gave me a card also). I figured that now was the time to get rid of that high interest loan (it was around 35%). Thanks again.