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How soon to pay off high-interest installment loan?
I just got a personal loan with the idea that it would help build my (upper end of poor) credit score. The problem is, it's a very high interest rate (24% APR). The term of the loan is 60 months, and when I got the loan, I had no intention of letting it accrue interest for that long. It's a $6000 loan and paying the minimum payments means it would cost well over $10000 to repay.

My initial thoughts were to pay it off within 6 months - six payments of a little over $1000 and it's a done deal.. However the loan place told me to help my score I should keep it open for at least a year, though I'm not sure if they just want to make more money in interest charges. Another thought is to make some high payments now, then let a small remaining balance linger for a long time, so that it accrues a lot less interest charge but a longer payment history shows up on the credit report.

Any advice on what the best strategy would be for improving my credit score? I don't mind losing some money on interest as long as it's not too much and has a positive impact on my score. Would paying the a big chunk of the debt off early be a bad idea?

I also have about a dozen credit cards (pretty low limits due to lousy credit score because of past debt problems) that I've been maintaining perfect payment history on and usually pay the balance of every month, but are all less than 2 years old, with low utilization, and a new car loan with a much better APR of 2.3% and 48 month term which hasn't shown up on my credit report yet (it's only about a month old). With the car loan the interest rate is good so I'm in no hurry to pay it off, however is it a bad idea to pay it off in 2 years or less rather than 4? Either way I think I should try to get the high-interest loan payed off first since it's costing me the most.

I'd like for my score to be as good as possible within the next couple years so that I can get a larger loan to buy property, and better interest rates on any other lines of credit.

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Top Contributor
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you've got the right idea

Helpful to 2 out of 2 people

I agree with the Idea of making several large payments to get the balance down on that personal loan.  I would multiply your monthly payment by 7, Then devide the balance by 5.  Make 5 large payments. Then make 7 monthly payments to pay off the balance.  or you could just make 12 $500 payments and that will leave a final payment of the remaining intrerest payment.  

The advice that you not pay off the loan before 1 year has passed is kind of a mixed bag.  Yes the loan will look better on your report, large payments over longer period of time. But If you can afford to make the larger payments I would rather see you not pay the accrued interest (about $1440 the first year) 

Also:  Check your paperwork on this loan.  Some have substantial fees for an early pay off. Especially those lenders that give those High interest loans.  But you will probaly still save more than the fees cost if you pay off in a year rather that 6 years of interest.

Good Luck

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Call Credit Pros 1-877-235-0324. They can help and offer free advise. They also have a partneship with mortgage lenders whom can help as well. Good luck my friend.

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