We are sure you would have either received those annoying calls from telemarketers or got those text messages saying, ‘Congrats! You have got a pre-approved loan for an X amount’. You might have even seen this message when you went to the ATM to withdraw some money. You might be tempted to get your hands on that loan, especially if you might need some money in future. However, you need to understand what pre-approved personal loans are before you go for one.
What is a pre-approved personal loan?
As you might know, a personal loan is an unsecured loan offered by financial institutions. Often, there is no collateral needed. A pre-approved personal loan is a loan offer provided by a bank or financial institution based on the relationship that you already have with them. Banks are more likely to grant you pre-approved personal loans than NBFCs.
How do banks decide the amount of pre-approved loan that they grant? This is often based on the balance in your savings account. The more the average balance in your savings account, the higher will be the amount of pre-approved personal loan offered by the bank. Some banks may even offer the pre-approved personal loan based on your loan repayment history. There are also banks that offer higher amounts of pre-approved personal loans to those who have got multiple financial products such as a home loan, fixed deposit and a car loan, from the bank.
Pre-approved personal loans are very convenient because you already have an account with the bank and the bank has all your details. This gives you room for negotiation regarding the loan amount, interest rate and tenure.
Another advantage is that you get the loan more quickly when compared to applying for it with a bank that doesn’t have any of your details. Usually, pre-approved personal loans get disbursed within a day or two if all the documents are in place.
Pre-approved personal loans are credited to your savings account without you having to give a cancelled cheque or your account details. This means there are less hassles getting money using pre-approved personal loans.
Most of the times these pre-approved personal loan offers are only for a limited period. Your bank might actually come back and say that the offer is no longer valid.
Having a pre-approved personal loan offer doesn’t guarantee the sanction of the loan. A lot will depend on the additional documentation that might be needed such as your income and details about your other liabilities. Your credit score will also play a part here. So, there will be a loan process involved even though the personal loan is pre-approved.
Most of the times the interest rate offered for a pre-approved personal loan might be higher than that offered for a regular personal loan. You will have to check the rates before you agree to take on that personal loan. Compare across financial institutions to get the best loan.
You should read those terms and conditions before signing up. Most of the time, banks don’t allow you to pre-pay the loan and there is even a waiting period for foreclosure of the loan. The charges for foreclosure might be high. Check all these before choosing a pre-approved personal loan.
You should understand that a pre-approved loan offer is a promotional offer by banks. This is usually to cross-sell products to existing customers. So, it is best to treat this like a promotional offer rather than an actual one. The actual sanction and disbursement will be decided only after the loan is processed. Additional documentation will be needed for this. You should be ready to provide those documents if you want the loan to be processed quickly.