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Question By
DiveMasterBrian

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I secured home improvement loan but DON'T need it.
I applied and was approved for 30,000 loan. The money is being deposited into my bank today. I don't need it so I am not going to spend it. However, I am going to immediately pay it down to about 25% and make the monthly payments on the rest until it's paid off. I wanted to have a mix bag of credit. Is there a better way to repay this loan to minimize the APR that I will be paying? I am wiling to pay the APR so long as in the end, it will help my credit and show lenders that I had 30k but didn't need it. Just playing the game. Is there a better choice for this strategy?

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I used a personal secured loan similarly when I started to repair my credit, although is was quite smaller and only for a year.

Each loan can be structured to have no early pay off penalties, some do, and you would have to read your contract very closely.  Without the exact knowledge of the contract any advice might be bad. It could be that the 75% you plan on paying are all just applied to payments, in which case you will be paying full interest, or it could all go to principle and reduce your interest.

Yes this will in the long run improve your score, but will hurt it right now, as you have more inquiries and a lower average age of credit, but it does help with the diversity.  If average age of credit and inquiries are a strong suit (meaning you have very low inquiries and high ager of credit) you could pay for a few months, then get a personal loan to pay the rest if any extra you pay goes toward future payments.  This would reduce the amount of interest you pay, but again it does hurt with the two factors in the short term.

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Reply by
Nomadre

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Remeber also that any money still owening on this loan 1) reduces home equity as I am asuming that you used home a collateral 2) holds a lien on your home 

Reply by
DiveMasterBrian

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It was an unsecure home improvement loan with nothing used as collatteral.  Thank goodness.  :)  I am reading the fine print now and have my fingers crossed lol.  Better late than never I guess.  I'll get back if I have got myself into hot water. 

Reply by
DiveMasterBrian

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Whew!  There is no penalty for pre-paying the loan!  It states:

Prepayment policy: If you pay off your loan early, you will not be charged a penalty. In the event of a full prepayment, you may be entitled to a refund of part of the finance charge.

Not bad at all.  I would actually use this loan otherwise but it's at a 19.89% APR.  Not a chance in hades I need it that bad!

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Reply by
Nomadre

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Sounds good,  next thing you need to find out is if prepayment applies towards princple, or can you direct it to be so.  If so then I would say just make your prepayment and keep it for a few months to avoid most of the interest.  IF it can only go toward future payments, then pay the whole thing of ASAP as even paying 3/4 of it you will have a tone of interest.

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