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    Pre-approved Personal Loans - Basics

    You make an ATM transaction and are about to leave the kiosk when a message pops up on the screen – “You are eligible for a pre-approved personal loan. Do you want to avail it?” Some of you may take the opportunity, while others may not feel the need to. But everyone would surely have wondered at some point – what is this “pre-approved” personal loan?

    Why Are Pre-approved Loans Offered?

    Pre-approved loans are a promotional exercise by banks to increase the sales of their loan products. There are several possible reasons why you may be chosen as an eligible customer:

    1. The bank might have checked your credit score and found you a good customer;
    2. The bank might have reviewed your credit history with them and noticed good bank balance and transaction rate;
    3. You may have taken a loan from the bank previously and made prompt and regular repayment;
    4. The bank might be monitoring your income and expenditure rates in comparison with your credit-worthiness.

    Advantages of Pre-approved Personal Loans

    The positive side of pre-approved home loans is as listed below:

    • Quicker processing time: Since you have already passed the eligibility criteria for the loan, you will not be subject to severe scrutiny. If your papers are in order and all financial information tallies, then your loan could be approved and disbursed within a day.
    • Negotiation power: In a pre-approved loan, the bank is approaching you with a product and instead of you walking in with a request. This means that you are in a position to negotiate the terms of the loan with your bank manager or relationship manager and bring down the interest rate or increase the tenure or repayment term. If you are making an online application, however, this advantage would not be available as there is no human intervention.
    • Special discounts: To lure you into taking a pre-approved personal loan, the bank may also add small benefits such as processing fee waiver, lower interest rate than that for regular customers, EMI holidays for 1-3 months, etc. If you really need a loan, these perks will help to slightly reduce your overall estimated debt.

    Disadvantages of Pre-approved Personal Loans

    A sweet deal in the financial sector is especially never free of disadvantages. Here are some things you need to be wary of about pre-approved personal loans:

    • Pre-approved loans may be valid only for a few days as an exclusive deal. So if you really want to take the loan, you need to act fast.
    • A bank is not legally bound to sanction your loan once it makes a proposal for a pre-approved loan. If any discrepancy is found in your documentation or credit score, the application can be rejected. “Pre-approved” only signifies your eligibility for loan, and not instant approval and disbursement.
    • Check the interest rate for regular before accepting a pre-approved loan. While it is quite likely that the interest rate on the loan sanctioned to you may be 1-2% less than the market rate, some banks may increase their interest rate for pre-approved customers.
    • Before signing the loan deal with any bank, take a look at the schedule of fees and charges. Some banks may charge additional processing fee on pre-approved loans, or put in extra fees such as transaction fee, or put a high penalty on foreclosures and partial pre-payments.

    Just because the bank is offering you a loan does not mean that you should take it. Get into debt only if you are really in need of the money. If you are taking up the offer, ensure that you take the amount that you need and not the amount that the bank is willing to give. For example, if the bank is offering you Rs. 5 lakh for 5 years, but you need only Rs. 3 lakh that can be paid back in 3 years, go ahead and negotiate a better deal.

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