What is a pre-approved loan? Should you take it?
Pre-approved loans are often in principle agreed by the lender and subject to fulfilment of eligibility norms and applicable terms and conditions.
A financially strong and credit-worthy borrower attracts the attention of the lenders as such borrowers are more likely to repay their loans and not default. So, instead of waiting for financially strong borrowers to approach them for a loan, banks themselves approach such borrowers with pre-approved loan offers.
Should you accept a pre-approved loan offer? How must you evaluate the offer? Let’s find out.
Pre-Approved Loans
Pre-approved loans are often in principle agreed by the lender and subject to fulfilment of eligibility norms and applicable terms and conditions. Under pre-approved loans, banks usually know about the borrower’s creditworthiness. For example, they know about their credit score and income. However, they may still require documents such as an ITR return and the latest income proof to verify the repayment capacity and current income status. Bank may offer you a pre-approved loan that can be a secured or unsecured instrument. For example, you may get an offer for a pre-approved home loan, car loan, bike loan, personal loan, etc.
Who Gets The Pre-Approved Loan Offer?
Bank account holders or borrowers with loan accounts and high creditworthiness have a higher chance of getting a pre-approved loan offer. Some pre-approved offers are timebound and expire after a time. A pre-approved loan is mostly offered to individuals with a high credit score, zero loan default history, high income as per the ITR, or if they maintain a big balance with the bank.
Pre-Approved Loans Vs Regular Loans
In the case of a pre-approved loan, the bank already possesses information about the candidate’s eligibility. On the other hand, in a regular loan, the bank first gets the loan application and then checks the applicant’s eligibility. The tentative loan limit, interest rate, and charges are already disclosed when you get an offer for a pre-approved loan, whereas in regular loans, the loan amount is unknown at the time of application. It depends on factors like credit score, age of the applicant, existing debt obligation, etc. If you don’t accept a pre-approved loan, it doesn’t impact your credit score. But applying for other loans will have a small negative impact on your score.
How To Check Pre-Approved Loan Offers
Banks and financial institutions usually inform their customers through different channels like email, WhatsApp messages, SMS, on customer’s mobile/online banking platforms, etc., and the bank’s customer support team may also call you. You can also go online to a loan aggregator where all your pre-approved offers may be listed in one place.
Can The Pre-Approved Loan Be Rejected?
Despite being pre-approved, a loan can still get rejected by the lender. The loan may require certain documents to be submitted by the borrower. If you don’t do that within the prescribed time limit, it can result in a rejection of the loan application. Banks usually offer a pre-approved loan basis the information already available to them. Suppose during due diligence, the bank finds a substantial difference in its data and the information provided by the applicant. In that case, the bank may reject the loan despite being pre-approved. For example, a pre-approved loan can be rejected for a recent change in job, sudden fall in the credit score, deterioration in financial capacity, change in bank’s criteria, property not approved on bank’s due diligence etc.
Tips Before Accepting Loan Offers
It would be good to accept a pre-approved loan offer only when needed. Never avail a loan facility just because you are eligible for it and can get it easily. Before accepting the pre-approved loan, compare the interest rate, tenure, charges, and applicable terms and conditions with similar loan products offered by the same institution and with other lenders. Accept the pre-approved loan only if you find it similar to or better than another bank’s offer. Lastly, make sure the offer has come from a legitimate source such as a bank or NBFC. Beware of scamsters who may entice you via SMS or email with fake loan offers.
(The author is CEO, Bankbazaar.com)