Experts agree that pre-approved loan offers should be accepted only when there is a need for funds. Do not avail loan facility just because you are eligible for it.
Pre-Approved Loan: Banks or financial institutions prefer to give loans to such borrowers who are financially strong. This is because such borrowers do not default and are more likely to repay the loan. Many banks do not wait for borrowers to give loans and themselves approach financially sound borrowers and offer them loans. When banks themselves approach the borrowers for granting loans, it is called a pre-approved loan.
Now the question is, should you accept these pre-approved loan offers? How should you evaluate a pre-approved loan offer? Let’s know.
What is pre-approved loan
The pre-approved loan is often agreed upon by the lender and the loan is disbursed on the basis of eligibility criteria and applicable terms and conditions. Under a pre-approved loan, banks usually know the creditworthiness of the borrower in advance. For example, banks know about your credit score and income. However, they may still require documents like ITR return and latest income proof to verify repayment capacity and current income status. Banks can offer you a pre-approved loan. For example, you may get offers for pre-approved home loans, car loans, bike loans and personal loans.
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Who gets the pre-approved loan offer?
Those borrowers who have a better financial position are more likely to get pre-approved loan offers. Some pre-approved offers are for a limited time and expire after a period of time. Pre-approved loans are mostly given to individuals with high credit score, zero loan default history, high income as per ITR.
Difference between pre-approved loan and regular loan
In case of pre-approved loans, the bank already has the information about the eligibility of the borrower. Whereas, in a regular loan, the bank first gets the loan application and then the eligibility of the applicant is checked. When you get a pre-approved loan offer, the loan limit, interest rate and charges are already disclosed. Whereas while applying for a regular loan, the loan amount is not known. How much loan the borrower will get depends on things like his credit score, age, existing loan. If you do not accept a pre-approved loan, it does not affect your credit score. But applying for other loans will have a slight negative impact on your score.
How to check pre-approved loan offers?
Banks or financial institutions usually inform their customers about the offer through various modes such as email, WhatsApp message, SMS and through the customer’s mobile / online banking platform. Apart from this, the customer support team of the bank can also call you. You can also visit a loan aggregator online where you can get all the pre-approved loan offers at one place.
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Can a pre-approved loan get rejected?
The lender can still reject your loan even if it is pre-approved. There are certain documents that the borrower has to submit for the loan. If you do not submit these within the stipulated time, your loan may be rejected. Banks usually offer pre-approved loans based on the information already available. Suppose the bank finds a difference between the information already available and the information given by the applicant, then in this situation also the bank can reject your loan. For example, your loan can also be rejected based on things like recent change in job, sudden drop in credit score, deterioration in financial condition, change in bank’s criteria.
Important things to know before accepting loan offer
Pre-approved loan offers should be accepted only when there is a need for funds. Never take advantage of a loan facility just because you are eligible for it and can easily avail it. Before accepting a pre-approved loan, one should compare the interest rate, tenure, charges and applicable terms and conditions of different banks. Accept a pre-approved loan only if you find it similar to or better than what any other bank offers. Beware of fraudsters during this time. You can be lured into the trap by making fake loan offers through SMS or email.
(Adhil Shetty, The author is CEO, Bankbazaar.com)