Paying off a secured loan early

[jonson]

I was curious if early-payoff off a secured loan is a problem.

 

I'm looking at getting a secured loan and credit card from Navy. If I were to pay the loan off, say, a month after opening the loan, does that reduce the benefit of rebuilding?

[mmmagique]

I was curious if early-payoff off a secured loan is a problem.

 

I'm looking at getting a secured loan and credit card from Navy. If I were to pay the loan off, say, a month after opening the loan, does that reduce the benefit of rebuilding?

 

Yes it does. You want at least 12 months of on time payments for optimal benefits.

[jonson]

I was curious if early-payoff off a secured loan is a problem.

 

I'm looking at getting a secured loan and credit card from Navy. If I were to pay the loan off, say, a month after opening the loan, does that reduce the benefit of rebuilding?

 

Yes it does. You want at least 12 months of on time payments for optimal benefits.

 

Thank you for the response. I'll keep that in mind. Navy said 6 months was their minimum, so I will have to ask for 12 months.

 

Does the size of the loan matter? I'm just trying to keep the monthly payments low.

[mmmagique]

In one way it doesn't. You are just showing responsible borrowing and pay back.

But in another, I'm wondering if having small loans are like having "toy" cards, and might affect the size of non-secured loans you are offered in the future?

Hopefully a credit guru will come along to address this.

[Violentb01]

I would make sure there is no pre-payment penalty that some companies try to throw at you.

 

I would never suspect NFCU of pulling such a thing, but on a secured loan.....you never know.

[jonson]

After further consideration, I realized it would not benefit me to pay off early because a partial reason I want this loan is to prove to Navy Federal that I can make on-time payments.

[gca]

After further consideration, I realized it would not benefit me to pay off early because a partial reason I want this loan is to prove to Navy Federal that I can make on-time payments.

 

I did a $500 secured loan with a 12 month period with NFCU. If you can do a $1000 secured loan, that might be better.

[Menta33]

I'd recommend to pay it down but not off. One input, albeit small, to your FICO score is the utilization ratio of your installment loans. Try paying it down to less than 50% of the original balance and then making normal payments for a year.

[Art_Vandelay]

I got the secured CC from NAVY myself. I did the 1-2 Punch with getting a 2K secured loan and then turning around and putting that into a secured Visa. On the loan every payment that you made they would then release the same amount to you back into your savings.

 

As tempting as it was to "go ahead and pay it off" I held back and instead made double the payments. It was scheduled for a 24 month payoff and I just doubled my monthly payment after the first couple of months and pad it off in full in the 13th month. I showed them that #1 I was responsible enough to make a payment every single month and #2 that I was able to make extra payments out of my own money since I kept the money they released, in my savings drawing interest.

 

It must have made an impression with them seeing as how they released my secured Funds on my 2K secured Visa during the 18th month and gave me a CLI from 2K to $10K which was pretty neat. Oh yeah almost forgot. They kept the same account number on my VISA so instead of giving me a "NEW" unsecured VISA it was the same old one so I didn't have to have a "New" account listed on my CR and bringing down my AAOA's which was pretty cool of them too because I would have hated having a new card report when in actuality it was 18 months old.

 

I'm certain that if I ad paid off the secured loan in 2 months I would not have gotten the same results.

 

Good Luck. NAVY Rocks and has really been the "Go Too" Credit Union for a lot of people. Including myself. They've been great to me.

[MarvBear]

IMO a 3 year payment history on installment credit indicates:

 

Ability to pay

Willingness to pay

and

Stability.

[jonson]

This is all great information, thank you everyone.

[Credit Pimp]

What if you do a 12 month $500 secured loan...pay 6 consecutive months then pay it off. Then take the funds and do another $500 secured loan and do the same thing and pay it off after 6 months. That way yku can have two secured loans paid off in your credit report with in one years time. I think its 6 months is all you need to show good payment abilities.

Edited September 11, 2013 by Credit Pimp

[seashell73]

I suggest calling and asking the people at NFCU what works best for them. I know that may sound odd but it is what I did. I explained that I needed to rebuild my credit in general and that I wanted to build a reputation with them. I asked what they need from me (things they look for) so that I can borrow in the future unsecured. The person on the phone was very helpful and set me up. 1 year later and they issued me a $5K credit card unsecured along with a $30K car loan (although I ended up not using it). I hope this helps