In today’s world, financial emergencies, like medical needs, wedding funding or educational expenses, can arise unexpectedly. Most people go for a personal loan in such cases as it provides flexibility and easy access. But if you are seeking to make the process of a personal loan even faster, a pre-approved personal loan can be an ideal solution. These loans are offered by the banks to eligible customers without any need for paperwork or long waiting periods. In this article, we will delve into how you can qualify for a pre-approved personal loan and the steps to obtain one with ease.
What is a Pre-Approved Personal Loan?
A pre-approved personal loan is a type of loan provided by banks or financial institutions to some selected eligible customers. These loans are pre-approved by the bank based on the borrower’s creditworthiness, income stability, and financial history and, thus, require minimal documentation.
Pre-approved personal loan service is mostly offered by the bank to existing customers as a reward for maintaining a good credit score and strong financial terms. As the bank has already evaluated the profile of the borrower, the approval process is faster and provides quick disbursement of funds, making it an ideal choice for urgent financial needs.
How Does the Pre-Approval Process Work?
The process of pre-approval for a personal loan is straightforward and designed to simplify borrowing for eligible customers. Here is how it works: –
- Eligibility Check: The bank evaluates your financial profile based on various factors like your credit score, income stability and the relationship with the bank. All this process is usually done in advance by the bank, without your involvement. You get approved for a pre-approved loan if your profile matches the eligibility criteria of the bank.
- Loan Offer: If your financial profile meets the bank’s criteria, then they extend an offer for a pre-approved loan. They will communicate with you via messages, email or through their website or app. The offer consists of all the loan details like loan amount, interest rate, and other terms. This offer and terms of the loan are often personalised for you according to your creditworthiness.
- Application Submission: If you are interested in the offer, you can accept it by submitting a basic application in person or online on the website or app. As the bank has already approved you for the loan, so very minimal paperwork is required.
- Disbursement: As you are pre-approved for a personal loan, no time will be taken for the approval of the loan and the funds will get disbursed into your bank account within minutes.
The pre-approval process is very efficient as it does not take any time for approval and the funds from the loan get transferred quickly, which comes in handy in times of need.
What Are the Benefits of Getting a Pre-Approved Personal Loan?
Getting yourself pre-approved for a personal loan has many advantages that make it a convenient option: –
1. Know Your Budget:
When you have an offer of a pre-approved loan, you already know how much you can borrow. This information helps you in better financial planning for the future and also ensures that you stay within your budget while planning any expense.
2. Save Time
The pre-approval of the loan eliminates the need for any additional paperwork. The lender has already evaluated your profile so when you apply for the loan, it gets immediately disbursed into your account, saving you time in your emergency needs.
3. Increase Your Negotiating Power:
In this case, you are pre-approved for a personal loan, the bank comes to you with an offer of an already approved personal loan which allows you to negotiate on your terms. You can negotiate with the bank manager and get the loan at a lower interest rate or more time to repay the loan.
4. Avoid Multiple Credit Checks:
Pre-approved offers are based on your existing financial history and creditworthiness. So, in this case, you don’t need to apply to many lenders to get your loan approved which will in turn, reduce your credit score by going through repeated inquiries and credit checks.
These benefits of a pre-approved loan make it a stress-free and effective solution to meet your financial needs.
How to Pre-Qualify for a Pre-Approved Personal Loan
All banks have set their eligibility criteria for a pre-approved personal loan and to pre-qualify, there is an eligibility criteria that one has to fulfill. Here are some points that you can follow to get yourself pre-approved for a personal loan: –
- Good Credit Score: A credit score above 700 will increase your chances of getting approved. Maintain your credit score, timely pay the bills and avoid any payment defaults.
- Ensure Stable Income: Job stability ensures the bank that you are a reliable borrower in the eyes of the one who is lending, which boosts your probability of getting approved. So you need to provide proof of your income like a salary slip or tax return.
- A Strong Banking Relationship: If you maintain active accounts, use bank services regularly and maintain a healthy balance in your account then you are considered a loyal customer by the bank and increases your chances of getting pre-approved.
- Limit Existing Debt: You should maintain a low Debt To Income (DTI) ratio. A low DTI ratio demonstrates that you can handle additional loans. Don’t take too many loans and pay down the existing loans as much as possible.
By maintaining these factors, you can increase your chances of being selected for a pre-approved loan.
Documents Required for Pre-Approved Loans
When you are pre-approved for a personal loan, the lender has evaluated your creditworthiness. Thus, you do not require many documents while applying for a pre-approved personal loan. Here are some of the basic documents that lender can ask you to submit: –
- Proof of identity: Aadhaar Card/ PAN Card/ Passport/ Voter ID.
- Address Proof: Utility bills/ Passport/ Rent Agreement/ Aadhaar Card.
- Income Proof: Recent Salary Slips/ Bank Statements/ Income Tax Return.
- Proof of Employment: Appointment letter or Employment ID Card.
- Pre-Approval Offer Letter: If you have an offer of a pre-approved loa,n then the offer letter or communication may need to be submitted.
These documents help the lender assess and verify your identity and other details before finalising and disbursing the loan.
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Charges Associated with Pre-Approved Loan
Here are the charges that are associated with a pre-approved personal loan: –
- Processing Fees: This is a one-time fee that is charged by the lender to process your loan which ranges from 2% to 3% of your loan amount. This fee may vary depending on the financial institution.
- Interest Rate: While pre-approved loans have relatively lower interest rates, they may vary according to your credit profile. If the interest rate is high, it will increase the total cost of your borrowing.
- GST and Other Taxes: Goods and Services Tax (GST) is applicable on processing fees and other charges, usually at 18%.
- Foreclosure Charges and Pre-Payment Charges: If you want to repay the loan amount before the end of the loan tenure, then the lender might charge a fee for prepayment or foreclosure. The fee typically falls between 2% and 5% of the total loan amount.
- Late Payment Charges: If you fail to pay your EMI on time, it can lead to penalties. This amount is usually calculated as a percentage of the overdue amount or a fixed amount penalty.
- Loan Cancellation Charges: If you cancel the loan after accepting the offer of a pre-approved loan then the lender can levy heavy cancellation charges on you. It often includes the non-refundable processing fee.
- Penalty for Insufficient Funds: If there are insufficient funds in your bank account for the deduction of EMI, the bank may charge a penalty because of bounced payment which ranges from ₹500 to ₹1000 for every instance.
Understanding these charges and reading the terms of the loan beforehand will allow you to make an informed decision. It will help you to avoid unexpected costs during the loan tenure. If there are any doubts, you should clarify them with your lender.
How to Apply for a Pre-Approved Personal Loan Online
Applying for a pre-approved personal loan online is a very effortless process. Here is the step-by-step guide that will help you with the application: –
1. Check your CIBIL Score:
One should start by checking their credit score to check if it meets the eligibility criteria of the lender. If they have a higher credit score then they have a chance for getting better offers and negotiating the terms, according to them, with their lender.
2. Gather Necessary Documents:
Although a pre-approved loan requires minimal documentation, some basic documents like identity proof, address proof, and income proof should be kept handy for a smoother and faster application process.
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3. Research Lenders and Compare Offers:
You should visit the websites or mobile apps of various banks or financial institutions to compare their offers of pre-approved personal loans, interest rates, loan tenure and other charges to choose the best option according to your needs.
4. Fill Out the Pre-Approval Application:
Login on the portal of the lender that best suits you using your registered details. Locate for the pre-approved personal loan option. Read all the terms and conditions of the loan and complete the application by providing any additional details and uploading the documents if required.
After you have submitted your application, the lender will review and verify it. If your credit profile matches the eligibility criteria set by the lender, it will approve your profile to apply for the personal loan anytime you require it. This provides the benefit of quick disbursement as you do not have to wait for approval.
What Are the Next Steps After Getting Pre-Approved?
After you get pre-approved for the personal loan, it is advised to step forward with a strategic mindset to secure the best deal. Here are the few steps that you can follow after getting pre-approved: –
1. Compare Offers from Different Lenders:
If you are approved by multiple lenders, then you should first compare them based on interest rates, prepayment, loan tenure, and other charges. After comparing, you should choose the lender with the terms that best suit your financial needs.
2. Finalize Your Loan Terms:
Now that you have selected a lender review the loan details very carefully. Also, confirm the total loan amount, loan tenure, interest rate, EMIs ,and any other charges to ensure that you are comfortable with all the terms and conditions.
3. Complete the Full Application Process:
Submit the application form along with some basic documents (if required). This process can also require you to sign a loan agreement digitally or by visiting the lender. You should always give your correct details to avoid any delays.
4. Loan Disbursement:
After completing the application process, you will not have to wait for approval as it is a pre-approved loan. The loan amount will be disbursed to your bank account, usually within a few minutes.
By following these steps, you can easily go from getting pre-approved to receiving funds while ensuring that you have made the best financial decision.
FAQs
- How can credit scores be improved for pre-approved loan eligibility?
To improve your credit score for pre-approved loan eligibility, you should pay bills on time and keep your credit utilization below 30%. Clearing your outstanding debts and avoiding multiple loan applications as they can lower your credit score because of frequent inquiries. You should monitor your credit profile regularly for any errors and maintain a strong credit history.
- What is the difference between pre-approved and regular personal loans?
Pre-approved loans are offered to selected customers who meet the predefined eligibility criteria, such as credit score and good relationship with the bank. These loans are pre-approved by the lender and do not require any evaluation of the borrower thus, very minimal documentation is required, and funds are disbursed quickly. Whereas regular personal loans require formal documentation and application. A thorough credit evaluation of the borrower is done by the lender.
- How long does it take to get pre-approved for a personal loan online?
Getting pre-approved for a personal loan is a quick process, mostly taking just a few minutes or a few hours. If you are an existing customer of the lender, in that case, the approval is instant. The exact time may vary depending on the lender’s policies.
- Can I apply for a pre-approved personal loan with a bad credit score?
It is a challenge to apply for a pre-approved personal loan as the lender checks your ability to repay a loan through your credit history, which is determined by your credit score. Pre-approved loans are mostly offered to individuals with high credit scores and financial stability. However, some lenders may consider your application even with a low credit score based on your financial stability. However it is advised to first improve your credit score before applying for a pre-approved loan.
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