Rohan, a young man drawing a decent salary, used to spend a part of it to manage his regular expenses, including his Credit Card bills. Like most people, he had a bucket list and at the top of the list was ‘buying a car’. One evening he received a call and the person at the other end said, “Sir, we are calling from your bank. A pre-approved loan of Rs. 2,50,000 has been sanctioned under your name. Visit your nearest branch for details on how to get your loan”. Rohan couldn’t believe his luck. More than half the funds required for his car were ready. But he had a few questions. This was too good to be true. How was this possible? Was there a catch? What could the possible advantages of getting a pre-approved loan be? Let’s find out.
What is a pre-approved loan?
Before we answer any other question, let’s understand what a pre-approved loan is.
A pre-approved loan is simply “an offer for a loan” which is based on your credit worthiness. Banks are ready to provide a loan to potential borrowers, subject to the fulfillment of certain predetermined terms and conditions.
So, why would a bank offer anyone a pre-approved loan? Why is the bank ready to provide a loan to someone who hasn’t even asked for one? The answer is simple. It’s your good Credit Score. Banks check your credibility based on any previous loan you may have taken or your Credit Card management. They assess your financial standing and ability to repay the loan before making you an offer. A pre-approved loan goes hand in hand with pre-approved credit records.
The next question on your mind is probably, is the loan guaranteed? The answer is NO. A pre-approved loan is just an offer from the bank. It is only an indicator of your eligibility to get a loan. It does not guarantee that you will get the loan no matter what. You still have to go through all the required procedures that are involved in getting a loan. The one thing you don’t have to do is prove your credibility. However, if your financial status disintegrates and your credibility becomes questionable after the offer has been made, chances are, you will no longer be eligible for a pre-approved loan.
Features of pre-approved loans:
- A pre-approved loan offer is usually valid for limited time. If you don’t take the loan within that time, you lose it.
- Processing time is comparatively shorter than that of a regular loan.
- The cost to acquire the loan is similar to other types of loans. You might get a lower interest rates, but processing fees are generally the same.
- Terms and conditions have to be satisfied for loan approval. Remember, a pre-approval does not obligate the bank to sanction a loan.
- It is applicable be for secured as well as unsecured loans.
Advantages of a pre-approved loan:
Less Processing Time: Your credit worthiness will reduce the processing time for loan disbursal as the finance institution already knows your financial status. The higher a customer’s Credit Score, the faster the processing of the loan.
Increased Negotiating Power: Negotiating power increases when a customer’s credibility has been established. As you’ve been approached by the bank, you are in a better bargaining position. Try to use this to your advantage to get better interest rates and EMIs terms.
If you’re one of those people who has good credibility with your bank, you might be lucky enough to be eligible for a pre-approved loan. But before accepting the loan offer, you need to ask yourself: Do I really need this loan? A pre-approved loan could lead to unnecessary spending, if you aren’t careful. So make an honest assessment of your requirements before opting for any kind of loan. Also, make sure that you compare your pre-approved loan to a regular loan in terms of interest rate, fee structure, EMI and additional benefits. And only then, sign the dotted line.