You just got a call and you hear the voice on the other side of the line go, “Congratulations Sir, you have been pre-approved for a Personal Loan for the sum Rs. 50,000. All you need to do is visit your nearest branch and complete a few steps to get the loan”. Should you be worried or happy when you receive calls like this out of the blue?
Well, this is quite a common strategy that banks use to cross-sell products to existing customers who have a good Credit Score. Before you decide to take the leap into the world of Personal Loans, let us help you understand exactly what a pre-approved Personal Loan is and what the positives and pitfalls are.
What’s a pre-approved Personal Loan?
In simple terms, a pre-approved Personal Loan means the bank has agreed to provide you with a Personal Loan based on certain basic criteria. The banks carry out an initial analysis of your financial standing and credibility based on which you are deemed eligible for a Personal Loan.
Your Savings Account plus your Credit Card payments will determine the amount of loan that you are eligible for.
Note: There are two types of pre-approved loans – secured and unsecured. Personal Loans and loans on your Credit Cards fall under the category of unsecured loans, while Home Loans and Car Loans are secured loans.
Benefits of a pre-approved Personal Loan
Speaking of the benefits associated with pre-approved Personal Loans, here goes:
- Quicker loan processing: Since the banks have already done a check to determine your loan eligibility before approving the loan, the time taken to process the loan is much shorter.
- Availability of discounts: Most banks offer a special interest rate on the pre-approved Personal Loan. These loans usually have a validity period for applying s you may want to hurry up if you want to get a good deal!
- Negotiation with banks: As your loan is pre-approved, you have an edge over other Personal Loan applicants and can use this to negotiate with the lending bank. Since the lending bank is aware that you are a genuine buyer, it will be more likely to give you good discounts and attractive interest rates. Time to use your bargaining skills!
Just be aware that a pre-approved Personal Loan does not mean that the bank is obligated to disburse the loan amount to you! The banks will still do a background check before finally disbursing the loan amount.
Pitfalls of pre-approved Personal Loans
Like the two sides of a coin, pre-approved Personal Loans also have a couple of pitfalls.
- Fixed validity: A pre-approved Personal Loan is generally valid for a certain period of time. So if you want to think over whether or not you should apply for the loan, don’t take too long.
- Additional processing fees: If you do not opt for the loan within the validity period, you will lose the benefit of a lower processing fee. In such cases, you will need to pay something extra to have the loan re-approved.
Documents required for a pre-approved Personal Loan
Although the paperwork needed when applying for a pre-approved Personal Loan is less, here are some documents you should keep close at hand:
- Last three months salary slips
- Bank account statements of the last six months
- Proof of residence
- Identity proof
- IT Return for the last three years
- PAN card
Remember though that just because you’ve been a pre-approved Personal Loan, it does not mean that you should apply for one, especially if you don’t actually need one! Think twice and if you are ready for a loan, we’re right here to help!
Additional Reading: CIBIL Score for Personal Loan