Pre-approved loans are more common than you think. If you have a good credit score and high income, then you may have received a call or SMS from your bank yourself saying that you are qualified for such a loan. But what is it really?
What is a Pre-Approved Loan?
A pre-approved loan is a personal loan that you can obtain easily without dealing with cumbersome formalities or the need for collateral. This is because the banks offer these loans only to those customers who have a good credit history that’s devoid of late payments and low CIBIL score. The principle is that if you have a clean credit record, then it’s unlikely you will default on a loan. Hence, then banks are comfortable offering ICICI personal loans, HDFC personal loans, etc. without a worry.
What are the Pros and Cons of a Pre-Approved Loan?
There are many advantages of a pre-approved loan. Some of the biggest ones are the following:
The Upper Hand: In a pre-approved loan, you have the leverage when negotiating with the lender. This is because it’s them who are interested in lending you a loan and you haven’t even asked for one. Thus, you can ask for an attractive interest rate and more favorable repayment terms easily.
Faster Processing: Compared to standard loans like ICICI Personal loans, pre-approved loans are processed much faster and require minimum paperwork. This is because these loans are approved for only those customers who have a high creditworthiness. In other words, the lender understands that these customers are highly trustworthy and likely to repay the loans without any problem. So, they don’t need to recheck their financial and personal information in details.
Ideal for Emergencies: If you need money on an urgent basis, then a pre-approved loan can be a good solution. This is because credit cards tend to attract a high interest rate, and applying for a traditional loan at some other bank may take a lot of time before the funds are disbursed.
Pre-approved loans have their share of disadvantages too. These are:
Time Limit: Pre-approved loans are usually offered for a certain period only. So, if you don’t apply for the loan during this period, the offer may expire for good.
Interest Rate Uncertainty: It’s possible that the interest rate offered to you in a pre-approved loan is actually higher than the standard market rate. This can happen if you have a low CIBIL score or if the lender is trying to take advantage of an uninformed customer on purpose.
How Can You Qualify for a Pre-Approved Loan?
The banks determine your eligibility for a pre-approved loan on the basis of a variety of factors. For instance, if you have a salary account, then they can have an understanding of your financial capacity. They also check your credit report to see how punctual you are with the payments of credit cards and loans’ EMIs, etc. Naturally, if you have a high salary and good credit score, then you stand a good chance to be eligible for a loan.
If you qualify for a loan, you may need to submit the following documents:
Proof of income
Last 3 salary slips
IT returns for the last 3 years
Bank account statements
How Can You Increase Your Chances for Pre-Approved Loans?
There are many things you must take care of if you want to receive offers for pre-approved loans. For starters, you should improve your credit score and credit report. Your CIBIL score should be at least 750 (900 is the maximum) and your credit report should be devoid of mistakes or errors in personal details, bank account details, previous loans, etc. Other than that, your salary should be sufficiently high as well.
So, if your bank offers you such a loan, ask yourself “do I really need it?”. If you answer this in the affirmative, even then you shouldn’t act impulsively. Check out the interest rates of the other banks and see if there is a better deal available. Take your time and make your decision wisely.
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