Why installment plans are denied

What is an installment plan?

An installment plan is a simple way to purchase goods. You can arrange it in a store in no more than half an hour. The feature of such a banking service is that the client does not receive money in hand, it goes directly to the seller. The buyer themselves receives their product and gradually pays it off with the bank. 

Most often, stores offer installment payment plans for a period of 3 to 12 months. Provided that the client makes payments on time, interest is not accrued – this is the main difference between an installment plan and a consumer loan. Also, when applying for an installment plan, no collateral or guarantor is required. 

Applying for an installment plan is much easier than a consumer loan. Provided you have a good credit history, only a passport will be required. If the credit history is ruined, the credit consultant may request a 2-NDFL income certificate. If you are denied an installment plan despite presenting all documents, you should look for another reason.  

Why do banks refuse?

The scoring system evaluates borrowers simultaneously on several parameters. The main ones are: 

• solvency; 
• marital status; 
• education; 
• credit history. 

Based on this information, a potential borrower is assigned a scoring rating, and the probability of installment plan or loan approval depends on this indicator. 

Banks may refuse to grant installment plans for the following reasons: 

1. Damaged credit history. If a client has a poor credit history, the bank will not take the risk. An installment plan may still be approved if the client has missed a few small payments in the past but has since fully settled their debts. 
2. High debt load. The Central Bank has recommended against issuing loans and credits to citizens with a debt-to-income ratio exceeding 50%. You can calculate this indicator yourself: subtract all loan payments from your monthly salary. If less than 50% remains, the installment plan may be denied. However, every case is individual. If a person's salary is high, the bank may reconsider its decision. 
3. Low income. If a potential borrower earns less than 15,000 RUB per month but requests an installment plan for 500,000 RUB, the loan may be denied. The lender will have doubts about whether the borrower can make such regular payments. 
4. Criminal record. Citizens with a criminal record are frequently denied loans and installment plans, but here too, everything is on a case-by-case basis. The deciding factors will be the specific article under which the citizen served their sentence and their income after release. 
5. Failure to meet the lender's requirements. Loan applications may be denied due to insufficient length of service at the current job, age, or discrepancies in the registration address. 

If the installment plan is provided not by a bank, but by the store itself, a refusal may occur due to suspicious appearance. For example, a person wants to buy a phone that costs 70,000 RUB, but does not display signs of solvency. In this case, the loan will be denied due to the high risk of default. 

How to avoid refusals

Before applying for an installment plan, you need to figure out the reason for the refusal and eliminate it. Trying to find out this information directly from the bank is pointless. Credit institutions never disclose the true reasons. To increase your chances of getting an installment plan, you should try to improve your credit rating. To do this, you can apply for a credit card (banks are usually quite willing to issue them) and use the credit limit. Gradually, the level of trust from banks will increase. If the installment plan is denied due to a high debt load, you will first need to pay off your existing debt. 

When can you re-apply

Immediately after receiving a refusal, do not rush to apply for a new installment plan. It is highly likely to be rejected, and your scoring rating will drop to the maximum extent. After a refusal, you should wait at least 2 months before applying for a new installment plan. 

Which installment plan is the most profitable

The most advantageous installment plan is the one provided by the supplier of goods or services. This option is convenient for the customer, but it is rare. Stores rarely offer this option because it would be problematic for them to collect money from the customer if the customer stops paying. 

An in-store installment plan is an interest-free bank loan issued on the spot. In this case, the customer may be refused due to a damaged credit rating or lack of official employment. Sometimes store credit managers inform the customer of an installment plan refusal and instead offer an interest-bearing loan. 

Another advantageous option is an installment card. It is versatile, but before applying, you should check the list of partner stores in advance, from whose purchases you can receive numerous bonuses and points. 

An installment plan differs from a loan in its smaller limit and lending term, as well as the absence of interest. You can apply for it without contacting a bank, directly in the store. If the client's credit history is good, only a passport will be required to apply; in some cases, the bank may require income confirmation via a 2-NDFL certificate. Banks may refuse to grant installment plans for various reasons, notably: poor credit history, high debt load, or non-compliance with the lender's requirements. If an installment plan is denied, do not rush to submit a new application. It is better to resolve all discrepancies and try again no earlier than in 2-3 months.