Pre-approved loans are mostly similar to standard loans
Pre-approved loan offers usually come with competitive interest rates
You would have often got phone calls or SMS from the bank saying that you’re eligible for a pre-approved loan. Now, what is this pre-approved Personal Loan?
Pre-approved loans are mostly similar to standard loans by nature except for the fact that the lender is approaching you first with an offer before you reach out to him and make an application to borrow funds. Banks usually carry out these promotional activities to push pre-approved loans and increase their loan sales.
Why is it for you?
A pre-approved loan is offered after the lender does an in-depth evaluation of the customer’s creditworthiness. If you’ve been maintaining a good track record in terms of repayment of your Credit Card or other dues without fail every month, you are most likely to be offered a pre-approved loan.
Also, if your bank knows that you have saved up a good amount of money in your Savings Account and found you eligible after checking your income and expenses, you may be the chosen one for the pre-approved loan.
Types of Pre-approved loans
It is basically a Pre-approved Personal Loan which is an unsecured loan that can be availed from Banks or other Financial Companies (NBFCs), without having to provide any collateral or security.
Pre-approved loans aren’t only restricted to Personal Loans; banks offer pre-approved Home Loans, Car Loans, and it may be against your Credit Card. However, the offers may be for a limited period.
Why should you consider an offer of a pre-approved loan?
- Flexibility of purpose
You can use this personal loan for any purpose. Ideally, it is taken to meet sudden personal or medical emergencies or to consolidate debts.
- Simple documentation
Personal Loans are the most preferred choice of loans for its simple documentation. If you’re looking to avail a loan, keep these minimum documents:
- Salary slips – 3 months at least
- Bank statements
- ID proof
- Residence proof
- PAN card
- Increased negotiating power
Since the bank wants you to take a loan, you’ll be able to negotiate loan terms such as reduce the interest rate, extend the tenure, increase the loan amount, etc.
- Competitive interest rates
Pre-approved loan offers usually come with competitive interest rates. You may have to pay lower interest than other personal loans as the bank is trying to push sell its products for meeting its targets.
- Less processing and disbursal time
As the lender has already evaluated your financial standing and credit history, plus, since you already have an existing relationship with the bank, there wouldn’t be much scrutiny involved. It makes processing time for the loan short and the disbursal quick. If you’re lucky, your loan may get approved and disbursed in a day or two.
- Support in emergency
It is a great tool to get extra funds in times of crisis. As it comes with the convenience of repaying through easy EMIs at lower interest rates, you can address your needs, affordably.
How will you get this loan?
If you need a pre-approved loan, you’ll have to apply for it before the offer expires. These offers are time-bound. Bank may have given a pre-approved offer, but it is not bound to sanction your loan. A few formalities need to be fulfilled before the actual disbursement of the loan. The bank can any time choose to revoke the offer.
Many a time, the pre-approved loans offer special discounts such as EMI advantages, processing fee waivers, part-payment options, etc.
The pre-approved loan procedure is mostly the same as any other personal loan. You’ll have to submit relevant documents to avail the loan. As the bank has already checked your creditworthiness, the processing time may be lower than in other cases.
Are there any disadvantages?
Though pre-approved offers make the process of availing the loan convenient and simple for borrowers, still, you have to keep the following things in mind:
- Be cautious
Remember that there’s no such thing as a free lunch. The offer may seem very tempting in case you are in urgent need of money for an emergency or to meet specific goals of life, but, just like any other loan, you have to repay the money with interest.
- Be watchful
Just because the lender is approaching you for the loan, you should not sign on the dotted lines without reading the fine print. You must read between the lines carefully to know about the terms and conditions to make an informed choice and avoid heartburn later. Before you agree to the loan’s terms and conditions, know the charges associated with late loan repayment or on loan foreclosure and prepayment, among others.
- Compare other offers
Comparing various pre-approved loan offers will always give you a holistic idea of different loan offers. You must know the interest rate currently offered in the market. So, this borrowing exercise is a must-do to seal the best deal.
Just Summing Up
I hope by now you have a fair idea about a pre-approved loan. But please note that a pre-approved loan offer is a bank’s attempt to sell their products and meet targets based on the information they have about you with them. Taking any loan is, after all, not a sign of good financial health. Unless there is a dire need for money, do not go for this kind of loan, and give such offers a second thought, always.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
(About Author: Arindom is a professional writer, editor, blogger and a member of the International Association of Professional Writers and Editors, New York. A management postgraduate in finance with extensive industry exposure, he is associated with many reputed global online magazines and publications as a regular contributor. He loves to help his readers writing highly informative and well-researched investment-related content to make informed decisions.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of organization)