An in-depth guide on pre-approved personal loans

Many banks and non-banking financial companies (NBFCs) offer pre-approved personal loans to their select group of existing customers based on their credit profile. Here is an introduction to pre-approved personal loans along with their features to help consumers make an informed decision before availing such offers.

What are pre-approved personal loans?

Pre-approved personal loan is a variant of the regular personal loan scheme, offered by lenders to select existing customers based on their credit score, income, employer’s profile, etc. Just like regular personal loan schemes, pre-approved personal loans are unsecured in nature i.e. loan applicants need not pledge any collateral/security to their lenders when availing such loans. One can use the proceeds from pre-approved personal loans for any purpose, except for speculative activities.

Eligibility

Customers eligible for availing pre-approved personal loans usually have good credit profiles. Lenders usually consider the income, credit score, employer’s profile, employment type, existing debt obligations, etc. of their existing customers before offering pre-approved personal loans to them. Note that as such personal loans are ‘Invitation to Apply’ offers from lenders, they may revoke their loan offer during the loan processing in case of any adverse changes in their customers’ credit score, income, job profile, etc.

Interest Rates

Customers should note that getting a pre-approved personal loan offer from their lender is not a guarantee of lower interest rates. Many lenders offer preferential interest rates to their existing customers. Therefore, those eligible for availing pre-approved personal loans should first check the interest rates on personal loans offered by other lenders with whom they maintain deposits, loans or credit card accounts.

As personal loan interest rates offered by various lenders to the same individual can vary widely, prospective borrowers should compare the personal loan rates before opting for the pre-approved offer. To do so, they can visit online financial marketplaces to compare the personal loan rates of interest offered by multiple lenders based on their credit profile.

Tenure

The loan tenures offered by lenders on their pre-approved personal loan offers are the same as regular personal loans. It usually ranges from 1 to 5 years, with some lenders offering higher repayment tenures. You can choose your tenure as per your loan repayment capacity. However, note that selecting longer tenures will reduce your EMI burden but increase your total interest costs. Conversely, shorter loan tenures will help you save on interest costs but will increase your EMI amount. Hence, you should opt for longer tenures if you find it difficult to pay your existing EMIs. Otherwise, selecting shorter repayment periods for your personal loan will help you reduce your overall interest costs.

Loan Processing/Disbursal Time

Pre-approved personal loans are usually offered to consumers who have already fulfilled the eligibility criteria set by their lenders. Moreover, lenders conduct initial credit assessment of their existing customers before offering them this loan facility. This allows lenders to quickly process pre-approved personal loans. Many lenders also disburse pre-approved personal loans instantly or at least within the same day of loan application. Hence, individuals having urgent fund requirements should first check with their existing lenders for pre-approved offers.

Documentation

As pre-approved personal loans are offered to select existing customers, lenders usually do not ask for fresh documentation as they already have their customers’ KYC documents such as proof of address, income and identity in their database. This helps lenders to accelerate the loan processing and disbursal for pre-approved personal loans.

Processing Fees

The processing fees for pre-approved personal loans are usually the same as or lower than that of regular personal loans. The processing fees levied on personal loans usually go up to 4% of the loan amount. However, some lenders cap the processing fee amount for their pre-approved personal loans, irrespective of the loan amount while some others waive it off during festive seasons and special campaigns. As the processing fee would also add up to your overall cost of borrowing, ensure to compare the processing fees of your pre-approved personal loan offers with that of regular personal loan schemes available from other lenders.

Prepayment/Foreclosure Charges

The prepayment or foreclosure charges for pre-approved personal loans are usually same as or lower than regular personal loans. The personal loan prepayment/foreclosure charges can go up to 5% of the outstanding principal amount. Note that as per RBI guidelines, lenders cannot levy prepayment or foreclosure charges on personal loans with floating interest rates. However, there are no such restrictions for fixed interest rate personal loans. Moreover, many banks/NBFCs do not allow their borrowers to prepay their personal loans until the payment of a predetermined number of EMIs. Therefore, those seeking to prepay their loans partially/fully in the future should check and compare the prepayment/foreclosure fees and related restrictions on their pre-approved personal loans with other personal loan schemes.

Source:-  https://www.paisabazaar.com/personal-loan/

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