Should I Pay Off A Loan I No Longer Need?

You took out the loan because you had a plan. You found the perfect car. You were ready to move forward. And then everything changed. That car wasn't the right choice.A different opportunity came along. Now the loan money is sitting in your account, your credit score has dropped, and you're staring at a decision you never expected to make.If that's you, I want you to know something before we go any further. You didn't ruin your financial future. You don't need a clever strategy. You don't need to panic. What you need today is wisdom.So today we're going to talk about what actually matters when you have a debt you no longer need, how your credit score really work in situations like this, and how to make the next financial decision with confidence instead of fear. That's what we're breaking down on today's show. Hello and welcome to Financially Confident Christian.And today's question is more common than people realize. So many of us make a decision based on the info we had at the time.But then circumstances changed and the question is, do you keep going or do you change course? Let's get right in today's listener question. Listener writes this. Hi Ralph.I'm kicking myself for a dumb financial move and I'm not sure how to fix it. I took out a $5,000 loan on Sunday because I thought I was going to buy a used car.The car ended up being rusty, so my partner and I financed a newer car from Carvana instead. And it arrives tomorrow. It's a 2019 and it's in great condition. The problem is the five thousand dollar loan got deposited today. I don't need it.My credit score was 750 before all this, but it took a hit from the loan inquiry plus financing for the actual car. Now, Ralph, I know I should probably just pay 5,000 back immediately, but I'm wondering if there's a smarter move here.Could I put the money in a separate account and make monthly payments on it to help rebuild my credit like larger payments? So it's paid off in a year, but I'm still showing active payment history. I know that might be stupid, but I've never taken a loan before this and.And I feel like I'm already messing up. Should I just bite the bullet and pay it off or is there something better I could do with it? Thanks.You got a lot to stuff unwind there and I understand this happens all the time. Sounds like you got a personal loan. You went to look at this car.It wasn't what you were expecting, so you're like, nah, I think we're going to go and pivot and buy something else. Sounds like you got a really cool car. I can't wait till you get it.Most of the time I will tell people to pay off money that you don't need, especially if keeping it makes means paying interest for a small credit benefit. What you're talking about is you're going to pay interest on a loan that you don't really need. And that could help your credit.But how much is it going to cost you? First thing I want to do is I want you to realize something. This isn't a mistake. Let's talk about what's really going on here.I hear shame in what you're talking about. You didn't make a dumb move. You made a decision based on the info you had at the time. And then the facts changed and you adjusted.See, you could have just carried forward and bought this car. That is a. There's a dump that it is all filled with rust. But you decided, no, this isn't for me. You made a wise decision.That's making good decisions, that's responding to new information, that's not being reckless. So let's start there. No shame in what you did here. No shame in your game, as they say. Let's talk about the credit score.Credit scores drop because of multiple events at once. You had that, what they call in the credit field, a hard inquiry for that personal loan. That happens.You had another inquiry for the vehicle financing. Again, that happens.At some point down the road, that auto loan is going to start reporting those new accounts and those inquiries are going to affect your credit score. That's normal. It happened to me the other day. We were at a department store and I got a 30% discount if I took out a credit card from them.I said, sure, why not? I'll save 30%. Well, I went ahead and did the charge on that day.A couple days later, a week later, I got a thing that says my score had dropped 10 points. I'm like, wait a minute, why did my score drop? I'm not sweating it. That temporary dip doesn't mean you're damaged your credit.It just means that there has been something on your credit report. Now make sure you're looking at it, but don't beat yourself up about it. The mistake isn't that circumstances changed it.The mistake will be letting that shame make the next decision. That lower score today doesn't mean you ruin your financial future. So stop overthinking in that.But now let's get into the specifics because you said, ralph, what should I do with this money? And that's where we can make a math or a financial decision. You gotta weigh the real cost against your cash flow.Keeping that loan for a year would build payment history. It absolutely would. No doubt about it. As long as you pay it on time, it's going to build your credit history.Now, I don't know your specific credit situation. Maybe this is the first loan you've ever gotten. I might make a different decision if I have more information.But you have to understand that history comes with a real interest cost. It's going to cost you money to do that. You said you borrowed $5,000.If it's a personal loan, I'm imagining the interest rates are a little bit higher. So you got to ask yourself, is it worth paying this much in interest for the next year for that credit benefit if you've already got a car loan?To be blunt, the car loan is probably going to be better for your credit anyway. Your new car loan is going to build what we call installment history. You don't need a second loan doing that same job.And on the cash flow side, a new vehicle means new expenses are coming in. You might say, well, Ralph, it's no big deal. I can make a loan payment for $5,000. But you also got a new car.You're going to have insurance, you're going to have registration, you're going to have maintenance costs. Those surprise repairs. Hey, when you own a car, surprise, surprise, things happen. Any unnecessary payment reduces your flexibility for those.But you have to ask yourself a couple questions here before you decide to just pay it off. Call the lender and ask some questions. A lot of people don't think about this. You got to find out, is there a prepayment penalty? Which means this.Some lenders will give you a penalty if you pay it back before it's due. Ask that question. Most loans don't do that. But ask that question, second question.Because the money is already in your account, you probably already owe them a little bit more than you borrowed. So get the exact payoff amount.What you don't want to do is assume, I'm just going to pay them 5 and then this money lingers out there and affects your credit. And then ask them this question. How will that early payoff be reported? Then you decide based on the answers, not some fear, but don't pay interest.For the illusion of financial progress, protecting your cash flow is most of the time more valuable than protecting some temporary Credit score dip. But now we got to think about a plan. I want to encourage you to make a clean plan for the next seven days. Number one thing, don't spend the money.Because I've seen this happen many times. A lot of people say, oh, I got the car loan and I got this extra money. Let's go on a vacation. No, keep it separate.Get those answers from the lender and get that official payoff amount. If there's no penalty, then pay it off. That's my. You want my professional view? Pay it off quickly.I don't see any value in keeping that money in your account and paying interest. Keep the documentation showing the loan was satisfied. Nothing. I'm going to encourage you. Do you ask me about this?But it's a great time to really build your credit with that car loan. Set up automatic payments. That way you don't miss those. And then check your credit report to make sure everything is reported correctly.That one, why step today is worth more than weeks of worrying about what already happened. Now let's get a little deeper in this. What often follows what I'll call a financial misstep and isn't just frustration, it's condemnation.And I hear you condemning yourself. And if you're like most of us, you're going to replay that decision in your head.You're going to criticize yourself and you're going to look for complicated ways to make up for it. But God doesn't call us to panic our way into wisdom. What he does is he calls us to walk in truth.Living in faithful stewardship isn't about never making mistakes. I make mistakes. You're going to make mistakes, too.But living faithfully is about acknowledging what happened, seeking wisdom, and taking that next right step. There is always grace for the decisions you made, and there's wisdom available for the one in front of you.God can use our mistakes to build maturity and use them to build discernment. I'm not saying you made a mistake, but you said that you're feeling that. That one loan doesn't define your future.And one wise decision can change your direction and your trajectory forever. So here's your win for today. I want you to call that lender this week and ask three questions really simple. We'll put these in the show notes.But number one question, is there a prepayment penalty? Number two, what's the exact payoff? And three, how will an early payoff be reported?Once you know those answers, then make a decision based on wisdom, not that fear. When you have information. It reduces anxiety. Let's get to our Bible verse for today. It comes to us from the book of Proverbs, chapter 22:7.It says the rich rule over the poor and the borrower is slave to the lender. That's just a truism. When you're in debt, it creates obligation. If you no longer need the obligation and remove it wisely, then do that.It makes sense to do that. How about we pray together?Heavenly Father, I want to lift up the person who feels embarrassed or anxious or frustrated over decision they wish they could undo. Hey man, so many of us have those, Lord, don't we? And I just ask right now that you would give them peace instead of panic.And Lord, help them to find wisdom instead of feeling like they live in a shame. Help them to separate facts from fear, Lord, and make the next right decision.And remind all of us that one financial decision doesn't define our future. Lord, thank you so much for your grace. Thank you so much for providing when we make mistakes.And thank you so much for showing us wisdom you offer when we seek you first, Lord, and we ask this in Jesus name. Amen, friend. You don't need a perfect financial record to build a healthy financial future. You just need the willingness to take the next wise step.So get the facts from the lender, avoid unnecessary debt where you can and focus on that loan you actually need. And hey, enjoy that new car you got. I'd like to hear about it.If you've got a question for the show, you can reach me by going to financiallyconfidentchristian.com/question We'll put a link in the show notes, but again, that's financiallyconfidentchristian.com/question Thank you so much for joining me today.Stay financially savvy. May God bless you and you have a truly great day.