Instalment loans are often used for rescheduling or paying off other debts, for instance overdraft arrangements. In this case it is best to state the intended use of the loan in the application, something which is not required otherwise. This means that the bank will not consider instalments for the debt a borrower intends to pay off as a liability while processing and checking the financing request.
This increases a borrower’s creditworthiness and the probability that the bank will approve the loan. If the debt being restructured or paid off is not included in the loan appraisal process, the improved creditworthiness might mean more favourable borrowing conditions.