Before discussing what a pre-approved personal loan is, let us take a look at what is a personal loan. Personal loans are unsecured, collateral-free loans that any salaried or self-employed individual with a decent credit score can avail from banks, NBFCs or Fintech lenders.
Pre-approved personal loans
When a potential borrower’s creditworthiness is found to be eligible for a loan, lenders offer them the facility of availing a pre-approved personal loan. To put it simply, if you get this offer, it means that your creditworthiness has been assessed favourably. Should you choose to apply for a loan during the offer period, your application will get approved without hassles – in some cases even within minutes.
Factors that make you eligible for getting a pre-approved loan offer
On what basis does a lender decide whether you are qualified for the offer?
The following is a list of checks that form the evaluation process for a pre-approved loan:
- · You possess an excellent credit score
- · You are diligent with the repayment of your credit card bills
- You have never missed out on paying your EMIs, if any
- Your income source is stable
- You have maintained a sound savings account balance
If you get a pre-approved loan offer, then your creditworthiness has already been recognized by the lender and you do not need to go through the initial screening that a borrower usually has to undergo when applying for a loan. However, you are still required to produce necessary verification documents and perform other required formalities in case you wish to avail the pre-approved loan.
The following is the list of documents you need when applying for a pre-approved loan:
- Bank statements (usually 6 months)
- Last three months’ salary slips
- PAN Card
- Proof of residence (Driving License, Aadhaar Card, Passport, etc.)
Advantages of pre-approved loans
Low interest rate: On account of your good credit score, the interest rate charged on your pre-approved loan is usually lower than what would be charged if you apply for the loan otherwise.
Quick processing: Since the initial screening of your credit history is no longer required, your bank can skip to other remaining formalities, thus reducing the processing time of your loan application.
Better terms: Sometimes, when you are a pre-approved customer, you can get the benefit of negotiating the terms of the loan (EMI tenure, etc.) as per your convenience.
Disadvantages of pre-approved loans
The offer is extended to you based on the assessment of your creditworthiness even when you have not applied for a loan yet. And since these offers are valid for a limited period of time, the timing may not necessarily coincide with your requirement of a loan.
Further, there is no point in taking a loan if you do not require it, just for the sake of availing the benefits of pre-approval. It is better to opt for a credit line instead, where you can get final approval and still won’t have to pay any interest until you actually use the money from your approved limit.
(By Kunal Verma, Chief Business Officer & Co Founder, MoneyTap)