Many lenders offer pre-approved personal loans to their select group of existing customers depending on their credit profile. Here is an in-depth guide on pre-approved personal loans and their features to help consumers make an informed decision before availing such loan offers.
What are pre-approved personal loans?
Pre-approved personal loans are a variant of regular personal loans, offered by banks and non-banking financial companies (NBFCs) to their select existing customers based on their income, credit scores, employer’s profile, etc. Such loans are unsecured in nature i.e. those availing pre-approved personal loans need not pledge security/collateral to their lenders. Borrowers can use the fund proceeds from pre-approved personal loans for personal, professional or business purposes, except for speculative activities.
Eligibility
Prospective borrowers eligible for availing pre-approved personal loans usually have good credit profiles. Personal loan lenders usually consider their existing customers’ credit scores, income, employment type, employer’s profile, existing debt obligations, etc. before offering them pre-approved personal loans. Note that as pre-approved personal loans are ‘Invitation to Apply’ offers from lenders, they may revoke their offer during the loan processing stage if there are any adverse changes in their existing customers’ credit score, income, employment profile, etc.
Interest Rates
Customers eligible for availing pre-approved personal loans should note that getting such loan offers is not a guarantee of fetching the lowest personal loan interest rates. Many banks/NBFCs also offer preferential rates of interest to their existing customers. Hence, customers eligible for availing pre-approved personal loans should first check the personal loan interest rates offered by other lenders with whom they maintain deposits, loans or credit card accounts.
As the interest rates offered by various personal loan lenders to the same individual can vary widely, prospective borrowers should compare personal loan interest rates of multiple lenders before selecting a pre-approved offer. Customers can visit online financial marketplaces and compare the personal loan rates offered by multiple lenders depending on their credit profiles.
Repayment Tenure
The tenures offered on pre-approved personal loans are the same as regular personal loans. It usually ranges from 1 to 5 years, with some banks/NBFCs offering longer repayment tenures. Prospective borrowers can choose their tenure depending on their loan repayment capacity. Note that although selecting longer tenures will reduce your EMI burden, it will end up increasing your total interest costs. Alternatively, shorter tenures will help you save on interest costs but will increase your EMIs. Therefore, you should select longer repayment periods if you find it difficult to pay your existing EMIs. Otherwise, opting for shorter personal loan tenures will help reduce your overall interest costs.
Time taken for loan processing/disbursal
Banks/NBFCs usually offer pre-approved personal loans to their select existing consumers, provided they have already fulfilled the eligibility criteria set by their lenders. Moreover, lenders carry out initial credit assessment of their existing customers before offering them this loan facility. Doing so allows lenders to swiftly process pre-approved personal loans. Many lenders also disburse their pre-approved personal loans instantaneously or within the same day of loan application. Therefore, individuals who have urgent fund requirements can first check with their existing lenders if they are eligible for availing pre-approved personal loans.
Documentation
As lenders offer pre-approved personal loans to their select existing customers, they usually do not ask for fresh loan documentation as they already possess their customers’ KYC documents, including proof of identity, income and address, in their database. Doing so helps lenders accelerate the loan processing and disbursal time for those availing pre-approved personal loans.
Processing Fees
The processing fees levied on pre-approved personal loans are usually the same as or lower than regular personal loans. Lenders usually charge processing fees of up to 4% of the personal loan amount. However, some banks/NBFCs also cap the processing fee amount on pre-approved personal loans, irrespective of the loan amount while some others waive it off during festive seasons or special campaigns. As processing fees add up to your overall borrowing costs, prospective borrowers should compare the processing fees of their pre-approved personal loan offers with that of regular personal loans available from other lenders.
Part-Prepayment or Foreclosure Charges
The part-prepayment foreclosure charges on pre-approved personal loans are usually same as or lower than that of regular personal loans. The prepayment/foreclosure charges on personal loans can go up to 5% of the outstanding principal amount. Prospective borrowers should note that as per the RBI guidelines, personal loan lenders cannot levy such fees on floating interest rate personal loans. However, lenders face no such restrictions for personal loans availed at fixed interest rates. Furthermore, many banks/NBFCs usually do not allow their borrowers to prepay personal loans until they repay a predetermined number of EMIs. Thus, prospective borrowers looking to prepay their loans partially/fully in the future should compare the prepayment/foreclosure charges and related restrictions on their pre-approved personal loans with that of other personal loan schemes.
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