Lending practices by banks are becoming more restrictive despite a decrease in interest rates.
In recent times, the installment loan market has been facing challenging conditions, with banks taking steps to avoid granting loans that borrowers may not be able to repay. This cautious approach is a response to the uncertain future prospects brought about by several crisis years and the resulting economic uncertainty.
According to an analysis by comparison portal Verivox, published in March 2023, this stricter lending practice has led to more than half of credit requests being rejected. However, consumers who are granted a loan in the current situation benefit from more favorable terms due to the lower interest rates.
The average interest rate for installment loans in March 2023 was 6.49 percent, as reported by Verivox. This average interest rate is below the level of the high-interest phase from July 2022 to January 2024, during which interest rates were consistently above seven percent.
The economic uncertainty has also led to a surge in demand for poor credit loans, with searches and applications increasing over 40% in 2025. To meet the strict requirements of banks, borrowers should consider the following trends and tips:
Trends:
- Surge in Poor Credit Loan Demand: Searches and applications for loans accommodating lower or poor credit have surged over 40% in 2025 as households seek short-term financial stability.
- Shift to Online and Digital Lending: Many lenders now offer streamlined online applications with fast approvals (often within minutes), catering especially to younger, digitally-savvy borrowers and those needing quick funds.
- Use of Alternative Data: Lenders are broadening credit assessment beyond FICO scores to include employment history, bank activity, and digital payment records, allowing more flexible underwriting and faster decisions.
- Focus on Predictability: Installment loans are favored because of their fixed payment schedules, offering borrowers clear repayment plans amid economic volatility.
- Strengthened Underwriting: Financial institutions have tightened documentation and risk assessments, particularly for high-risk customers, resulting in stricter approval criteria.
Tips to Improve Approval Chances:
- Compare Multiple Offers: Use loan-matching services to review various lenders’ terms, interest rates, and eligibility criteria to find the best fit rather than applying to a single lender.
- Demonstrate Stability: Provide thorough and accurate documentation of income, employment, and banking activity, which supports alternative data assessments and satisfies stricter underwriting.
- Apply for Appropriate Loan Amounts: Smaller loan requests aligned with actual needs (e.g., car repairs, rent) may face less scrutiny and have higher approval likelihood.
- Maintain Transparency: Be upfront about financial setbacks (e.g., layoffs) when applying, as some lenders have designed processes or products to assist those impacted by recent income changes.
- Utilize Digital Platforms: Leverage lenders with quick, online, mobile-friendly applications that reduce paperwork and speed up decision-making.
To increase approval chances despite rising rejection rates, borrowers should focus on leveraging digital tools, providing comprehensive financial data (including alternative data), comparing offers, and opting for loans sized to their immediate needs to navigate the stricter lending landscape and maximize approval chances. Submitting loan requests to several banks simultaneously can also increase the chances of approval, according to Verivox. Adding a second borrower can improve the chances of loan approval, as the risk is distributed across multiple shoulders.
In the end, borrowers aiming for installment loans in the current environment should be aware of the trends and take advantage of the available tools to navigate the stricter lending landscape and maximize their chances of approval.
In the economic climate of uncertainty, consumers who still require loans might find it beneficial to explore poor credit loans due to a surge in demand for such loans, with applications increased by over 40% in 2025. To improve their chances of approval, borrowers can compare multiple offers, demonstrate financial stability through thorough documentation, apply for appropriate loan amounts, maintain transparency about financial setbacks, and utilize digital platforms for quicker and more convenient applications.
