You must have received various emails, App notifications, SMS and WhatsApp messages from your bank about pre-approved personal loan offers. You must have also received calls or seen banners related to these in your internet banking. Some of these pre-approved personal loan offers give a discount or waive the processing fee, while some are offered at lower interest rates. So, what are these pre-approved personal loan offers, their benefits, and how to get one? Let us discuss.
What are pre-approved personal loans?
A pre-approved personal loan is a conditional loan offer made by a bank/NBFC to their existing customers. Before rolling out the offer to the customer, the bank/NBFC has already done the basic preliminary checks to ensure the customer is eligible. These checks involve the KYC check, credit score, past loan repayment track record, income source, etc.
These pre-approved loan offers come with benefits like a lower processing fee or waiver, lower interest rates, faster disbursement, low to no documentation, etc. Pre-approved personal loans are the quickest and hassle-free way of getting loans for the customer. Some of the differences between regular and pre-approved personal loans include the following.
Regular personal loans
Pre-approved personal loans
These are given to new and existing customers. Once the customer submits a personal loan application, credit underwriting needs to be done to assess the applicant’s creditworthiness.
These are mostly given to existing customers. Before making the offer, the bank evaluates the customer’s income source, balance maintained, credit score, existing loan/credit card outstanding repayment track record, etc. So, most of the credit underwriting is already done.
The personal loan interest rate is usually the same as offered to other customers. There may or may not be a discount or waiver of the processing fee.
Usually, the bank offers pre-approved personal loans at a lower interest rate than regular personal loans. The processing fee is usually discounted or waived.
If it is being offered to a new customer, the KYC check needs to be done. The customer has to submit income documents like salary slips, ITR return, bank statement, etc.
As these are offered to existing customers, the KYC check is already done. The bank may have already done the financial underwriting. Hence, there is minimum to no documentation.
The loan disbursement may take some time, usually a day or two.
The loan disbursement is instant or quick, usually in a few minutes to hours.
What are the benefits of a pre-approved personal loan?
A pre-approved personal loan comes with several benefits. Some benefits include the following.
Low interest rate
Pre-approved personal loan offers are made to creditworthy customers. These customers usually have a stable income source, good credit score, and a good repayment track record of earlier loans. As these are ideal borrowers that the bank would like to have, they are usually sent pre-approved personal loan offers at lower interest rates than others. Also, the processing fee is either waived or discounted.
No documentation
The bank mostly sends pre-approved personal loan offers to its existing customers. The bank already has a KYC record of these customers. Also, if the customer is an existing borrower, the bank already has the income details of these customers. Hence, pre-approved personal loans either involve no or less documentation.
Instant disbursal
The bank shares the loan amount, interest rate, processing fee, and other details as part of the pre-approved personal loan offer. The offer also contains the various tenure options and the respective EMIs. Once the borrower selects the loan tenure, agrees to the loan terms and conditions, and submits the application, it is processed instantly or quickly.
Once the application is approved, the loan amount can be disbursed instantly in the borrower’s bank account with the same bank, provided all the loan formalities have been completed.
Easy and hassle-free process
In the earlier section, we saw how the bank evaluates the customer’s creditworthiness before sending the pre-approved personal loan offer. We also saw how there is no or low documentation, and the disbursal is instant to quick. Thus, pre-approved personal loans have a hassle-free process and are one of the easiest to get.
How to get pre-approved personal loan offers?
As discussed earlier, banks send pre-approved personal loan offers to their existing customers. These offers are sent to existing borrowers and savings account holders. As a bank customer, to get pre-approved personal loan offers, you can take the following steps.
Build and maintain a good credit score
A prospective customer’s credit score is one of the most important factors in evaluating their creditworthiness. Usually, banks consider a credit score in the 700-750 range or higher, a good credit score for approving personal loan applications, provided other eligibility criteria are met. The higher the credit score, the more the number of pre-approved personal loan offers you will get.
To build and maintain a good credit score, you must make all EMI and credit card outstanding payments before or by the due date. You should maintain a credit utilisation ratio of 30% or lower and have a good mix of secured and unsecured loans. Make one credit application at a time and wait for the bank’s final decision. Don’t make too many applications simultaneously or within a short period.
When you follow the above steps, you can build and maintain a good credit score. Once you have a good credit score, banks will consider you a creditworthy customer and start sending you pre-approved personal loan offers.
Maintain a low DTI ratio
Banks consider a debt-to-income (DTI) ratio of 35% or lower for approving loan applications. Some banks consider a DTI ratio in the 36% to 50% range to approve loan applications on a case-to-case basis. The DTI ratio measures the percentage of monthly income going towards servicing existing debt (loan and credit card repayments).
If your DTI ratio is above 35%, work towards bringing it to 35% or lower. The lower your DTI ratio, the more the bank will consider you a creditworthy customer and send you pre-approved personal loan offers.
Things to keep in mind
Banks will keep sending you regular communication (sometimes every day) about pre-approved personal loan offers. The communication will highlight the benefits and the limited time offer creating a sense of urgency to avail it. However, you should avail of such offers only if you have a genuine need for a personal loan.
Just because you have a pre-approved personal loan offer, you don’t need to avail it. Splurging the pre-approved personal loan amount on a vacation that was not required or buying a gadget you can do without doesn’t make sense at all. Some people avail of the pre-approved personal loan offer and use the money for trading in shares which can be a big mistake if it leads to losses. So, unless there is a genuine need, don’t fall into the temptation of availing a pre-approved personal loan, no matter how lucrative the offer is.
Even though the bank has already done a credit check, a pre-approved personal loan offer is still conditional. There is no guarantee that it will be approved and disbursed. Pre-approved personal loans are also subject to fulfilling specific terms and conditions.
Should you go for pre-approved personal loans?
Pre-approved personal loans are one of the easiest and hassle-free loans to get. They offer advantages like low interest rates, no or discounted processing fee, no or minimum documentation, instant or quick disbursement, etc. However, they should be availed of only when there is a genuine need or emergency. Else, a person can fall into a debt trap. Hence, if you avail of a pre-approved personal loan, make sure you use the money judiciously.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
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