Many of us must have received emails or SMSes from various banks and NBFCs informing them about their pre-approved personal loan offers. Such offers are like low hanging fruits especially for those actively looking for quicker loan disbursals. However, to make an optimum choice, consumers should first gather more information before availing such offers. To help such consumers make an informed decision, here is a brief introduction to pre-approved personal loans and their features:
What is a pre-approved personal loan?
Pre-approved personal loan is a personal loan variant that banks and NBFCs offer to a selective group of their existing customers based on their credit profiles. Like regular personal loans, pre-approved personal loans are also unsecured in nature, i.e., applicants do not need to pledge any collateral or security to their lenders when availing the offers. The proceeds from pre-approved personal loans can be used for any purpose except for any speculative activities. Conventionally, lenders approve or deny a personal loan application after carrying out a detailed credit assessment. However, in case of pre-approved personal loans, the lender has already performed preliminary credit checks, thereby, allowing lenders to offer instant or at least same day disbursals.
Eligibility
Customers qualifying for pre-approved personal loan offers usually have good credit profiles. Some of the parameters that lenders may consider when offering pre-approved personal loans include the customer’s credit score, income, employment type, employer’s profile, existing loan obligations, etc. Also, note that pre-approved personal loans are ‘Invitation to Apply’ offers. Lenders may revoke the loan offer in case there are adverse changes in the customer’s credit score, job profile, etc. during the loan verification process.
Interest Rates
Getting a pre-approved personal loan offer does not guarantee lower interest rates. As many lenders offer preferential interest rates to their existing customers, pre-approved eligible candidates should first check the personal loan interest rates with whom they maintain deposit, loan or credit card account(s).
As the interest rates offered on personal loans can vary across lenders, they should also compare the interest rates of their pre-approved personal loan offers with the personal loan rates offered by other banks and NBFCs. Doing so will help them in availing the optimum loan offer. For this, they should visit online financial marketplaces as such platforms allow consumers to compare multiple offers on personal loan online on the basis of the interest rates offered.
Tenure
The tenures offered on pre-approved personal loans are the same as that of a regular personal loan. It usually ranges from 1 year to 5 years. Some lenders may offer higher tenures. For instance, the Central Bank of India offers personal loans for tenures until 7 years. Consumers can choose their tenure as per their loan repayment capacity. However, when choosing loan tenure keep in mind that longer tenures lower EMI burden but also increase the total interest cost. Shorter tenures, on the other hand, will help you save on the interest cost but will increase your EMI amount. Hence, go for longer tenures if you are struggling to pay your existing EMIs. If not, going for shorter tenures would be wiser as it will help you save more on your loan’s overall interest cost.
Loan Processing/Disbursal Time
Pre-approved personal loans have instant or same day disbursals as the consumers have already met the eligibility criteria set for the loan and have been through the initial credit assessment by their lenders. Hence, those requiring funds urgently should check with their banks and NBFCs for pre-approved offers. Some lenders like HDFC Bank and Bajaj Finserv claim to disburse pre-approved loans in just a few hours. Note, that some lenders having end-to-end digital onboarding processes also claim to offer personal loans on the same day. Hence, those in need of quick financing should also consider comparing loan offers from lenders having digital loan processing and disbursals.
Documentation
As pre-approved personal loans are usually offered to existing customers, no new documents are required as the lender already has their customers’ basic details such as their income, KYC, etc. in their database. Other lenders offering pre-approved personal loans on the basis of their credit scores may require documents such as proof of income, address and identity to process their loan application.
Processing Fees
Lenders charge processing fees to recover the cost incurred during the evaluation and processing of a personal loan application. The processing fee charged on a personal loan usually goes up to 2% of the loan amount, thereby constituting a major part of the total loan amount. The processing fees charged on pre-approved personal loans could be the same as that of regular personal loans. Some lenders may also charge processing fees lower than that of their regular personal loans. Some personal loan lenders cap the processing fee amount, regardless of the loan amount while some lenders waive them off during special campaigns and festival offers. Therefore, consumers should compare processing fees levied by multiple lenders before applying for a personal loan.
Prepayment & Foreclosure Charges
Borrowers bearing high interest cost and EMI burden might want to lower or relieve of their loan obligations by prepaying or foreclosing their pre-approved personal loans. As personal loan prepayment and foreclosure charges can go up to 4% of the outstanding principal amount, applicants wishing to make prepayments in future should check and compare the prepayment/foreclosure fees charged on their pre-approved personal loans with other personal loan options.
Note that as per RBI guidelines, banks and NBFCs cannot levy prepayment/foreclosure charges on floating rate personal loans. In case of fixed rate personal loans, lenders can choose to levy these charges. Moreover, many lenders do not allow their personal loan borrowers from prepaying their loans until they have paid a predetermined number of EMIs. Hence, those planning to keep their prepayment options open should consider the prepayment and foreclosure related restrictions when comparing offers.
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