Are you worried about having too many installment loans? Well, you shouldn’t. The number of loans isn’t the problem: it’s the fixed monthly payments that can become the issue. If your debt to income ratio is too high, it doesn’t matter if it’s an installment or revolving account.
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What is the Appropriate Number of Installment Loans to Have?

There is not a certain number of installment loans to have. In general, too many installment loans is when you’ve overloaded yourself in debt. If you are either paying the minimum payment or not even that for all your debts, that’s when enough is enough.

If you’ve been to school and took out loans, it’s easy to have four or five installment loans due to your student loans. Each disbursement is a separate loan itself. Then, auto and home loans come into place, and in a few years you’ll find yourself with at least six loans. Creditors are well aware of this. In fact, there is a formula or factors that determine your overall credit score.

  1. 35% – Payment history
  2. 30% – Amounts owed
  3. 15% – Length of credit history
  4. 10% – New credit inquiries
  5. 10% – Types of credit used

So from these figures, just having too many installment loans is not the question, it’s your overall history of having the loans. A good mix of revolving and installment accounts on your credit report can prove you are a responsible consumer.

Will Paying off an Installment Loan Hurt My Score?

You may have heard that if you start paying off too many debts, it could lower your credit score. This is not entirely true. Eliminating something such as a credit card and closing the account has a negative impact because it minimizes the length of your credit history.

If you are considering paying off an installment loan or two, it, in fact, can help your credit score. It will stay on your report for at least 10 years, increasing the length of a positive credit history. It also shows that you have paid the debt off on time and in full, something every creditor wants to see.

Which Installment Loan Should I Consider Getting Rid of First?

If you do want to pay off your installment loan, pay off the one with the highest interest rate first. This will save you money down the line of which you can apply towards other debts. If your interest rates are the same, pay off the more recent loan first so you can continue to establish your lengthier loan period.

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Let the Loophole Wars Begin . . .

Wonga has been in the news lately and for all the wrong reasons. Following an investigation by the Financial Conduct Authority the payday loan giant was hit with a $4.4 million compensation bill to be paid to no less than 45,000 customers, after it was found to be sending misleading letters purporting to be from law firms to customers.

Alleged ‘bad financial practices’ on the part of Wonga were highlighted as far back as 2008 by the investigation which culminated in the action taken by the Financial Conduct Authority. The investigation was initiated by the Office of Fair Trading who investigated whether Wonga was ever in breach of financial best practice rules.

So, does this highlight all that is wrong with the growing trend of using payday loan lenders or is it an example of a top-heavy, ‘regulation – happy’ administration? Is business and enterprise likely to be helped or hindered by the Financial Conduct Authority or will all this legal wrangling just line the pockets of lawyers with a sharp eye for an exploitable loophole?

A comparison may be drawn between the new Financial Conduct Authority and similar bodies in the UK with similar ‘public interest’ remits like the Serious Organised Crime Agency. SOCA was established in 2006 with a remit to tackle organised crime and money laundering in the public interest. Rumour has it though that SOCA has been under enormous pressure to rake in cash as a justification for its own existence. If true, what implications has this got for human rights? Many have argued that SOCA has run rough-shod over human rights to secure convictions that increase the agency’s record of ‘fighting crime’ and cash recovery records, and as such the line between pursuing crime in the public interest and pursuing crime as a means of self certification has arguably been crossed.

These implications highlight why we debated but decided against the introduction of ‘performance’ related pay for police officers. How can we measure the ‘performance’ of an agency or individual whose job it is to pursue the public interest? In the case of SOCA, you could argue that ‘performance’ has been measured through the metric of cold hard cash since their budget of £500 million odd is regularly scrutinised by various Westminster committees.

With this in mind it is possible to raise an eyebrow about the now similar activities of the Financial Conduct Authority. Is this just another SOCA but with a remit to target corporate giants like the Wonga website? You might shrug your shoulders and say, ‘well, doesn’t Wonga have lots of cash anyway?”. Well, this is true but this does not mean it is right that it and other successful businesses should be subject to fines in the ‘public interest’ when the ‘public interest’ has been, in the case of SOCA so brazenly measured in terms of ‘performance’ and cash recovery.

It is interesting to note that in the case of Wonga and the ‘fake legal letters’ debacle, no fines were imposed by the Financial Conduct Authority. Ultimately, Wonga avoided a fine, but was forced to pay compensation to customers affected by their actions. However, what is important is that the Financial Conduct Authority had the power to impose a substantial fine and as the years roll on, the ‘performance’ of the Financial Conduct Authority is likely to be measured and scrutinised in the same way we have seen SOCA examined. This will create the same dynamics currently being debated in the case of SOCA, in the case of the Financial Conduct Authority since its activity raises questions of how we can possibly measure the ‘public interest’ in terms of cash recovery?

On the other hand, consumer groups have endorsed the actions of the Financial Conduct Authority on the basis that it encourages an end to bad practices in the financial services sector. Aren’t there better ways to encourage an end to bad practices in the financial sector though? Moreover, are we just going to see a chain reaction as a result of public policy like this where corporations ‘lawyer-up’ and try to find loopholes to justify their actions? This does nothing for the public interest, unless you class enriching lawyers as being in the public interest.

The ‘performance’ of the Financial Conduct Authority remains to be seen and it is true that as yet we have not blatant examples of how cash recovery may have been placed above the pursuit of public interest, as we have in the case of SOCA. However, if the truth is told, we are not far off another SOCA-type body whose activities are likely to attract all the same controversies we have yet to resolve in the case of SOCA.

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