Have you ever received a loan rejection?
Yes, it is the most irritating part. It especially hurts the most when you need it urgently.
Usually, a lender expects the borrower to analyse the credit report, finances, personal details, and joint account associations before applying for the loan. It is because these aspects impact the loan approval chances. If you fall on any of these, it leads to loan rejection.
Additionally, when a lender declines a loan, he provides reasons for the same. If you have not received one, ask your lender to provide a clear reason for denial. It lies in your authority to demand clarity. The rejected borrower receives a message with reasons like- “too many delinquencies”, “lack of instalment loans”, “insufficient income”, etc. Knowing the reasons will help you shape your credit profile before making your next application.
Here, the blog discusses the impact of the “lack of instalment loans” aspect on your credit report. You may not know how important the credit mix is for your credit score and lenders. Instalment loans play the primary role in helping the lender determine financial management and credit health.
Does that imply you must have instalment loans in your credit report?
To answer precisely, “YES.” Let’s know the reasons.
What does “lack of instalment loans” on your credit report reveal?
As mentioned above, lenders provide reasons for denying a loan following a standard reason code. “Lack of installment loans” is one of the codes that the loan provider may provide as a reason for non-approval.
One uses this reason code for two reasons- either the person has not used the account for a long time, or there is no proof of the person having an instalment loan in his entire credit journey.
Moreover, this implies that one lacks a decent credit mix. It not only improves loan approval but credit scores as well. It is an important parameter apart from keeping credit utilisation low and making timely payments.
Additionally, the lack of instalment loans on your credit report reveals the absence of any personal loan, mortgage, student loan, or car loan at the time of credit analysis. These are some good credits/loans that reveal a responsible credit profile.
Why are installment loans critical to your credit standing?
Instalment loans are long-term loans with fixed interest and monthly instalments. A good loan term of about 5-12 years reveals your reputation for managing a long-term loan effortlessly. It attracts the attention of the prospective lenders and leads to loan approval. Precisely, a good mix of instalment loans is essential to grow your credit history the right way and achieve your lifestyle goals hassle-free.
After getting an installment loan, the lender requires the borrower to make regular payments. If you do so responsibly, you may improve your credit score and create a lengthy credit history. It is one parameter of payment history- the parameter that decides the credit score.
Should you apply for instalment loans to improve your credit history?
No, applying for any loan unnecessarily means a total waste. However, if you have any following goals or requirements, an instalment loan may help:
1)Wants to pay the loan in small instalments
It is ideal if you need a loan that helps you manage other aspects of life along with your big life goals like- buying a car on credit, a mortgage to live a comfortable life, or a home improvement loan. By small instalments, one means that it allows you to pay a specific amount every month without surprises.
2) Want to split the cost of big-item purchase
Splitting the cost of big-ticket purchase items reduces the burden. Instead of paying the lump sum, you can split it in bits. It becomes affordable and comfortable to manage then.
For example, if you want to change the house furniture and it costs around £72000, you can pay in instalments instead of a lump sum. If you earn £45000 per month, you can dedicate £6000/month as instalments towards the loan. It automatically reduces the burden and helps you manage other liabilities hassle-free.
3)Wants to qualify quickly
Instalment loans do not require detailed documents or analysis. Your income and credit score help the lender decide the approval. You get it if your income comfortably meets the criteria, and you repay monthly instalments without affecting the bottom line.
How else do instalment loans help improve credit scores?
You may not believe it, but taking out an instalment loan just for credit improvement can be a wise decision. For example, instalment loans like credit builder loans help you build one from scratch. It is an excellent thing for individuals with poor credit history or score.
You can get this by exploring instalment loans for bad credit scores for credit improvement. Here, you may get better rates as this loan does not undertake credit score as the primary mode for approval.
Funds in a credit builder loan are savings. Until you pay the amount, you cannot use the amount. Afterwards, you get the invested sum back with interest. It is just like the savings account work. However, an additional part is that it helps build and improve credit scores.
Can an unemployed enhance his credit history with installment loans?
Unemployed individuals may feel out of the bar due to imbalanced finances. However, you too can build a credit history from scratch with facilities for unemployed people, like loans on the benefits they receive. It is also an instalment loan designed especially for out-of-job individuals with limited income and benefits. Instead of seeking other personal loans, check this exclusive one.
You may get approval easily and the flexibility to choose repayments makes it easier to pay without missing payments. Gradually, it increases your credit score. Moreover, you can use it for any small purpose or emergency up to £5000. Beyond that, you may need a guarantor to qualify for these loans.
Note: Do not choose an extended repayment period just to pay comfortably. If you can pay within 5 months avoid exceeding it to 8. It may get costly for you then.
Bottom line
Having a detailed credit history is crucial from the credit and loan approval point of view. Instalment loans help you achieve that with ease. You can use it to finance any big-ticket purchase, education goal, or home improvement. You can build and improve your credit history by paying the costs in easy monthly instalments. Thus, yes, instalment loans are beneficial for your credit’s health and score. To know more, contact us today.
Jessica William
Jessica William operates as a Senior Consultant and Chief Content Editor for 10 years at 1Onefinance. She assists the firm in getting a grip on the new lending laws and regulations. She does so by researching the trends, consumer requirements, and new audience preferences. Jessica is responsible for making important financial and administrative decisions.
Apart from helping consumers with the best solutions, Jessica Williams helps them ensure financial stability. She analyse the business data, finances, expenses, and revenue/ income of customers and determines necessary changes. Jessica finished her Doctorate in finance and law and implements her knowledge to the best interest of the firm and customers.
