Does this Personal Loan Strategy Make Sense?

[audioman00]

I need to take out a second personal loan and have prequalifed for a decent rate (6.99%) for a loan in the $15,000 - $24,999 range. I need $18k. Does it make sense to take $24,999 and immediately pay down $7k so that I'm not too close to my limit? 

I have another loan that is $17k bal on $25k original loan at the same rate which I'm also keeping.

The context here is that I've been in the garden and would like to do a 2-3 card app spree in August, so trying to manage my scores carefully. 

Thoughts on this strategy? 

[AllZero]

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@audioman00 wrote:

I need to take out a second personal loan and have prequalifed for a decent rate (6.99%) for a loan in the $15,000 - $24,999 range. I need $18k. Does it make sense to take $24,999 and immediately pay down $7k so that I'm not too close to my limit? 

I have another loan that is $17k bal on $25k original loan at the same rate which I'm also keeping.

The context here is that I've been in the garden and would like to do a 2-3 card app spree in August, so trying to manage my scores carefully. 

Thoughts on this strategy? 

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@audioman00  Your logic is sound. Your utilization will be lower when the potential new loan reports.

[audioman00]

Thanks @AllZero  - I appreciate the second set of eyes!

[AllZero]

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@audioman00 wrote:

Thanks @AllZero  - I appreciate the second set of eyes!

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You are welcome. Good luck on your application!

[SouthJamaica]

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@audioman00 wrote:

I need to take out a second personal loan and have prequalifed for a decent rate (6.99%) for a loan in the $15,000 - $24,999 range. I need $18k. Does it make sense to take $24,999 and immediately pay down $7k so that I'm not too close to my limit? 

I have another loan that is $17k bal on $25k original loan at the same rate which I'm also keeping.

The context here is that I've been in the garden and would like to do a 2-3 card app spree in August, so trying to manage my scores carefully. 

Thoughts on this strategy? 

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1. Probably can't hurt, unless the interest rate is higher on the 25k than it would be on the 18k.

2. I don't think it will matter much to your scores. In my experience installment utilization hasn't meant much until I got it down to 9%. Either way, the new loan is going to be a drag on your scores.

[FlaDude]

Obviously make sure there is no origination fee on the loan that you have to pay on the 25k vs. the 18k. Otherwise sounds good to me.

[Anonymous]

Sounds good. But if you pay down to $17k, then you hit the next lower util at 68%

Paying down to 18k would be 72% ....still better than 100% and 89%

Scoring ymmv depends on many factors.  GL

[Anonymous]

This is what i do whenever I take out a Loan. It probably seems odd to some people to borrow more than you need to immediately pay down a loan. It's like why bother, just borrow what you need? In my head though you're going to lose points for the HP and new account, so i'd like to recover some from having a lower UT early in the term rather than waiting a year or more. 

Then again maybe I think too much about everything.

[SlideOrInsert]

what about the difference in fixed payments for an installment loan when borrowing more than you really need?

excel tells me that the difference is significant, for example given a 36 month term. even though you immediately pay down the loan to 18000, you still have a $772 payment vs. $556. and given the fixed higher payment, you will essentially be taking out a loan for a shorter time. which isn't necessarily a bad thing, if you have the ability.

rate	nper	pv	=pmt(rate,nper,pv)
6.99	36	18000	−556
6.99	36	24999	−772
rate	pmt	pv	=nper(rate,pmt,pv)
6.99	−556	18000	36
6.99	−772	18000	25

[Anonymous]

True, that is the one drawback of doing this. However, as long as it's not a drastic increase and it's still affordable. Then i don't feel it's too big of an issue. After all we aren't talking in terms of going from $7K to $14K just to have 50% pay down. This process should only be done if the amount over the needed amount doesn't increase the payment to something a person cannot comfortably make. 

Going into said loan I have a set amount i want the payment to be, and I try to adjust the terms to fit that. A shorter term generally equals a lower the rate so you have to try and borrow within those parameters. In additon my payments are usually half of what I can actually afford so that I can make a double payment if i feel like it, depending upon how lax I am with the budget on misc spend for the month.

I once had to borrow $15K for medical procedure and placed it in HYSA just in case, then used my Charge cards to pay for it to earn points. Little did I know Disco was running a 0% BT promo at the time so I just BT $10K of that to them for 12 months. Immediately paid $2K towards the loan and started paying twice the loan payment, which was $484 per month. Meanwhile earning 1.55% interest on the remainder in my HYSA.  Sometimes there is a lot or pre-planning before my actual planning.