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Getting a Loan for More than you Need

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kwinks
Regular Contributor

Getting a Loan for More than you Need

Hi,

 

I am finally getting ready to pull the trigger on applying for a personal loan to consolidate high interest credit card debt. I was recently sent a balance transfer offer for a Citibank CC (a card I already had and was paid off so no new inquiry yay!) for 0% interest through Dec 2024 so I transferred the max allowed to this CC and will now need a lower Personal Loan amount...but that got me to thinking...If I were to take out a loan for more than I needed and then paid off the extra before the personal loan reported, would that pontentially look better on my credit report?

 

For example, take out a loan for 28k, pay 22k in CC and then pay 6k on the loan. I am planning to pay everything off by the end of the year anyway but just out of curiosity mostly...

Message 1 of 6
5 REPLIES 5
markbeiser
Established Contributor

Re: Getting a Loan for More than you Need

Using the extra to pay a chunk out of the loan may not do much for your credit scores, but it will certainly save you money on the loan.

Back to gardening until Late February 2025.
Current FICO8:
Message 2 of 6
SouthJamaica
Mega Contributor

Re: Getting a Loan for More than you Need


@kwinks wrote:

Hi,

 

I am finally getting ready to pull the trigger on applying for a personal loan to consolidate high interest credit card debt. I was recently sent a balance transfer offer for a Citibank CC (a card I already had and was paid off so no new inquiry yay!) for 0% interest through Dec 2024 so I transferred the max allowed to this CC and will now need a lower Personal Loan amount...but that got me to thinking...If I were to take out a loan for more than I needed and then paid off the extra before the personal loan reported, would that pontentially look better on my credit report?

 

For example, take out a loan for 28k, pay 22k in CC and then pay 6k on the loan. I am planning to pay everything off by the end of the year anyway but just out of curiosity mostly...


If it's your only installment loan, you don't get a big bang out of paying it down until you get down to 9% of the loan amount. So unless you paid it down to $2500, you wouldn't get much in the way of FICO points.  No I wouldn't advise that.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 703 TU 704 EX 687

Message 3 of 6
ForwardLooking
Regular Contributor

Re: Getting a Loan for More than you Need

You need to look at the terms of the loan.  A lot of non bank/credit union personal loans charge origination fees based on the original loan amount, so taking out extra increeses these fees.  I would not even consider taking out more than you need unless it is with a bank or credit union that does not charge high origination fees.

 

The only slight benefit I can see is if the loan allows for future payments, you could use the extra to essentially buy a few months of pre-payments in case you don't already have an emergency fund.  Not all loans allow this, I had a loan with Upstart, for example, that would allow for extra payments without penality, but extra payments were not allowed to be credited as a future payment and I always had to make at least a full payment each month.  In contrast, my car loan allows me to pay extra, the money is still applied to the principal which reduces my interest paid over time, and it gets applied to future payments.  I can, in theory, skip the next 6 months of my car payments now if I were to run into an emergency and therefore do not budget this loan into my emergency fund.  Like I said, this would be the only slight benefit.

Message 4 of 6
Kforce
Valued Contributor

Re: Getting a Loan for More than you Need

No advantage for scores.

No financial advantage.

I see no reason to consider it

Message 5 of 6
CorpCrMgr1
Valued Contributor

Re: Getting a Loan for More than you Need

I believe if you had to ask you already knew the answer.  Please don't do it.

Message 6 of 6
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