Mr. Deepak Kumar, a 50-year-old salaried person, is about to retire soon. He wishes to borrow a loan to undertake an international vacation with his family. He plans on offsetting the loan amount with the pension he receives after retirement. Mr. Deepak has received a text message from his local banks stating that he has been offered a pre-approved personal loan. Mr. Deepak is now wondering if he should consider the pre-approved loan or take a regular loan.
About pre-approved personal loans
Individuals often get text messages, calls, or emails stating that they are eligible for a pre-approved loan of a certain amount. However, there are many aspects to keep in mind before considering such loans. A pre-approval indicates the maximum amount the lending agency is willing to provide, after considering the income and expenses of the potential borrower. Lending agencies also conduct a thorough inspection of the borrower’s credit history and his CIBIL score. Hence, individuals who have a clean track record of past loan repayment have a greater chance of obtaining a pre-approved loan.
Here are four points to be kept in mind while availing of a pre-approved loan
- Pre-approval does not guarantee loan sanction
Though the bank has made an offer, it does not imply that the loan has been sanctioned. Lenders ask you to submit all the documents again to verify your financial details. The required documents to be submitted are identity proof, address proof, income details, and income tax returns. Therefore, in reality, the requirements are similar to that of a regular personal loan.
- Interest rates are slightly lower
One major benefit of such loans is the slightly lower interest rate as compared to general loans. This is because the lender has checked your past repayment record and perceives you as an individual with less risk of default on payments. However, it is advisable to compare the loan rates of other lenders before signing the dotted line.
- You have a final say in the loan amount
For such loans, banks decide the amount you are eligible to receive based on the previous loan repayment record. However, you don’t need to borrow the entire amount. Decide how much finance you require, and borrow based on your repayment ability. Remember, this system puts you in a better negotiating position as the lender wants you to take the loan and not vice versa.
- Quick approval
Pre-approved loans are more likely to get approved at a faster rate than other kinds of loans. This is because lenders have already conducted comprehensive checks on your background. Hence, they already have the required details like your finances, ability to repay, salary slips, and other details. Therefore, the time taken for approval is reduced considerably.
Pre-approved loans are a great option in case of financial requirements. However, borrow only if you need finances, or else you may end up making unnecessary expenses. Once you are certain about obtaining finance, then only should you go ahead and apply for a pre-approved personal loan online.