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is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

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is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

I recently was aprove for a consolidation loan with a rate of 29% to pay off all credit cards.  I dont have anything negitive on my CR beside the high utilzation of CC.  Im sure my score will shoot up.  Could I apply for a better loan before the bad rate loan hits my credit report and just pay the bad loan off to put myself in a better situation.  Is this a thing that ppl do or am I just over thinking it.  If anyone have any experience with this pleae give me some insight.  

8 REPLIES 8
Super Contributor

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

I'm confused about the original loan being at 29%, as that doesn't seem any better interest wise (and perhaps worse) than the average of the rates you would have been paying on the CCs?  I get it that for Fico scoring purposes you shuffled your debt from revolving to an installment loan, which could in theory improve your scores (say) 50-75 points... but getting rid of debt is more important than scores in 99% of cases.  If I were you I'd look for a way to get rid of that high interest loan and obtain a low interest loan. 

 

What were your Fico scores at the time you applied for the high interest rate loan and you had all the CC debt?  Have all of your CCs reported to the bureaus yet with their lower/paid off balances?  I'm curious to hear how much your scores go up.  Based on your before/after Fico scores, you will probably have a pretty good idea as to whether or not you can grab a low interest rate loan.

 

Also keep in mind with the paying off of your CCs, you want to leave a tiny balance to report (say $5-$10) on just 1 of your credit cards and make sure it's a major bank card (not a store card or AU card) while all of the other cards report $0 to maximize your Fico scores leading up to your next app.

Message 2 of 9
Valued Contributor

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

Did you already accept the bad rate loan?

 

If so, my first question would be why? But even if you did, this might not actually be so bad. You'd pay the cards off and your scores would likely have some nice gains, maybe positioning you to get a much better rate loan elsewhere.

 

Under manual review, another lending institution might be able to infer that it's a subprime lender, but your credit score doesn't know the interest rate there.

Ch 7 Discharge May 2015
Discover/Target/NFCU CLOC/NFCU Cash Rewards/PenFed Power Cash Rewards/PenFed Pathfinder AMEX - $60k total revolving
EQ/EX/TU: FICO 8's Sept 2019: 696/676/670, 25% utilization, INQ's: 0/0/1
New approvals based on this data: Costco Anywhere Visa $5500, NFCU Platinum $25k
Message 3 of 9
Member

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

Thanks for the response. I get what you are saying about the 29% being worst than my CCs rates. The cc payments across all of my cards just to not let my credit get any worse monthly Was getting out of hand. Because they all were pretty much maxed out. All the simulators are putting me at 700 with cards paid off. My first loan payment is not until sep1. Ppl are telling me that the loan won’t hit cr until close to that date. I’m thinking my CCs will report before then. So if my scores go up to high 600 or just over 700. Should I try to get another loan before the loan show up
Message 4 of 9
Member

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

Yes I’ve seen my score before when I charge the cards all the way up and then paid them off with one lump payment. If I remember correctly one of them (I think EX) shot up 100+ points. I’m thinking I will have a week or so with this high score. Should I do something with it. Ultimate goal is to be able to get an AMEX with a nice amount. Stick all other cards in the bottom of the bin somewhere and just pay on one acct to tackle that debt.
Message 5 of 9
Super Contributor

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

You don't mention who the new loan is with... some report immediately, some not until first payment is due...

 

In theory, with or without the new loan reporting, your scores will shoot up when you pay off your credit card debt.

 

When all of the reduced balances have reported to the CRA's, you should be able to qualify for a better rate with another lender.

 

Good luck!

10/01/19 Fico 8: EX 717, EQ 721, TU 742.

Zero percent financing is where the devil lives...
Message 6 of 9
Regular Contributor

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

Yes, of course you can do this. Did the high interest loan have an origination fee or any other fees tacked on? If so, it may cost more money to do it, but when your score goes up, you should have more options. If you don't mind me asking, how much debt was it?
Message 7 of 9
Member

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

Yes. The loan was with freedom plus and yes it did have a origination fee. So I understand I will lose out a little because of that. The loan was around 15k
Message 8 of 9
Highlighted
Regular Contributor

Re: is it possible to apply for a better rate personal loan to payoff a bad rate personal loan.

That's not a crazy amount. It may cost the origination fee, but you can save a lot in interest. I would think you could pull that off, depending on how high your score jumps. Good luck! Let us know how it goes
Message 9 of 9
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