A pre-approved personal loan is an offer extended by a lender to its select existing customers with good credit profiles. Unlike regular personal loans, where the borrower initiates the application process, in the case of pre-approved loans, the lender proactively reaches out to the borrower with an offer. This offer is made after the lender has evaluated the customer's creditworthiness based on their credit score, employment profile, income, etc.
Pre-approved personal loans are collateral-free and can be used for various purposes, including professional, business, and personal needs, but not for speculative activities. For example, salaried individuals seeking loans to finance their new business ventures can consider pre-approved personal loans as an alternative to availing a business loan.
Here, I will outline the eligibility criteria, interest rates, tenure, and other features of pre-approved personal loans to help individuals make informed decisions before accepting offers from banks or NBFCs.
Eligibility Criteria
Individuals with solid credit profiles are eligible for pre-approved personal loans. Lenders consider many factors, such as employment type, credit scores, income, existing debt obligations and the employer's profile of their existing customers before extending pre-approved offers. It is important to note that pre-approved offers are 'Invitations to Apply' only. A lender may withdraw a pre-approved personal loan offer during the application process if there are any adverse changes in the customer's credit score, income, employment profile or other relevant factors.
Repayment Tenure
The repayment tenure for pre-approved personal loans is similar to that of regular personal loans, usually ranging from 1 to 5 years, with some lenders offering even longer terms. Applicants can choose their repayment tenure based on their repayment capacity. Choosing a longer tenure can assist in reducing the EMI burden but also increases the total interest cost. Conversely, choosing a shorter tenure decreases interest costs but increases the EMI. Therefore, applicants who might struggle with higher EMIs should consider a longer repayment tenure. In comparison, those who can manage higher EMIs should opt for shorter tenures to minimize overall interest costs.
Interest Rates
Prospective borrowers should be aware that receiving a pre-approved personal loan offer does not guarantee the lowest interest rates. As many lenders provide preferential rates to their existing customers, it is crucial for individuals eligible for pre-approved loans to check the interest rates offered by other banks or NBFCs with which they have deposit accounts or have availed loans or credit cards. As personal loan interest rates can vary significantly among lenders for the same applicant, borrowers should compare prices with multiple lenders to compare the best before accepting a pre-approved offer. Using online financial marketplaces like Paisabazaar, individuals can compare personal loan interest rates, including pre-approved ones, from various banks and NBFCs based on their credit profiles.
Processing Fees
The processing fees for pre-approved personal loans are usually the same or lower than those charged for regular personal loans which can go up to 4% of the loan amount. Some banks and NBFCs may cap the processing fee for pre-approved personal loans, regardless of the loan amount. Additionally, some banks and NBFCs may waive this fee during special campaigns or festive seasons. As processing fees may constitute a significant proportion of the overall borrowing costs, applicants should compare the processing fees of pre-approved personal loan offers with those of regular personal loans from other lenders.
Time Taken for Loan Processing
Before extending any pre-approved personal loan offer, lenders carry out an initial credit assessment of their customers. Further, many lenders disburse these loans within a few hours of the application or on the same day of making the loan application. Thus, individuals with urgent financial needs can check with their existing banks or NBFCs about their eligibility for pre-approved personal loans.
Documentation
Lenders usually do not require fresh documentation for processing pre-approved personal loan as they already have the necessary KYC documents (proof of identity, address, and income) of their existing customers. This allows for faster processing and makes pre-approved loans hassle-free.
