Pre-approved personal loan: Meaning, interest rates, fees & other features

Here we will discuss some must-knows of pre-approved personal loans to help individuals choose the optimal option.

What are Pre-Approved Personal Loans?

A pre-approved personal loan is a variant of the regular personal loan offered by banks to their select existing customers based on their credit scores, employer’s profile, income, repayment capacity, etc. Just like regular personal loans, those availing pre-approved personal loans need not pledge any security/collateral. Existing borrowers can use the funds procured from their pre-approved personal loans to meet their personal or business-related expenses, except for speculative activities.

Qualifying Factors for Receiving Pre-Approved Personal Loan Offers

Banks and NBFCs usually offer pre-approved personal loans to their select existing customers having good credit profiles. Among the major factors considered by these financial institutions for assessing credit profiles include the credit score, employer’s profile, income, repayment capacity, etc. of their existing customers. Additionally, banks may also consider the investments or deposits-related data while offering pre-approved offers as these institutions already have access to such data of their existing customers.

Note that a pre-approved personal loan is just an ‘Invitation to Apply’ offer. Hence, lenders are free to withdraw such offers or reject any subsequent application for pre-approved personal loans in case of any adverse change in the credit scores, income, employment profile, occupation profile, etc. of an individual.

Check and Compare Interest Rates offered by Various Lenders

Many banks offer personal loans at preferential rates to their existing customers. However, receiving a pre-approved personal loan offer does not guarantee the fetching of lowest interest rates. The personal loans interest rates offered by various banks and NBFCs to the same individual can vary widely due to multiple factors. Hence, individuals planning to avail pre-approved personal loans should first check the personal loan interest rates offered by other lenders with whom they maintain deposits or have availed loans or credit cards. Then, they should visit online financial marketplaces like Paisabazaar to check and compare the personal loan rates offered by other lenders based on their credit profiles.

Choose your Tenure based on your Repayment Capacity

The loan tenures offered on pre-approved personal loans are usually the same as that of their regular personal loans. Lenders usually offer pre-approved personal loans for 1 to 5 years, with some banks and NBFCs offering longer repayment tenures of 6 years and 7 years. Prospective borrowers should choose their loan tenures depending on their repayment capacity. While choosing longer tenures would reduce their EMI burden, it will inflate their interest costs. Alternatively, opting for shorter personal loan tenures will help reduce the overall interest costs while increasing the EMIs. Note that lenders too prefer sanctioning personal loans to those having existing monthly loan repayment obligations, including that of their new pre-approved personal loan, within 50-55 per cent of their total monthly income. Therefore, opt for longer tenures only if you are exceeding the aforementioned limits. Else, choose shorter tenures to reduce your interest costs.

Turnaround Time of Loan Disbursal

As lenders conduct an initial credit risk assessment of their existing set of customers before offering them pre-approved personal loans, it allows them to instantly process pre-approved personal loans applications. Thus, those in need of urgent funds should first check with their existing lenders if they are eligible for pre-approved personal loans.

No Requirement for Fresh Documentation

As lenders offering pre-approved personal loans already have the KYC documentation of their existing customers, the loan applicants are usually not required to submit fresh documents for establishing their identity, address and income. This helps the lenders in reducing the turnaround time for processing pre-approved personal loans.

Compare Processing Fees of other Personal Loan Offers

The processing fees of pre-approved personal loans are usually the same or lower than regular personal loans. While banks and NBFCs usually levy processing fees of up to 4 per cent of the loan amount, some lenders cap the processing fees on pre-approved personal loans, irrespective of the loan amount. Some lenders also offer partial/complete waivers on processing fees during festive seasons or special campaign periods. As processing fees can increase your overall borrowing costs, prospective borrowers should compare the processing charges on their pre-approved personal loan offers with the personal loan options offered by other banks and NBFCs.

Check Prepayment-related Charges and Restrictions

The prepayment/foreclosure charges of pre-approved personal loans can go up to 5 per cent of the outstanding principal amount. As per the RBI’s guidelines, lenders can levy these charges only on fixed-rate personal loans. Lenders sanctioning pre-approved personal loans at floating interest rates are not allowed to levy these charges on foreclosure or part-prepayment of outstanding loans. Some lenders also do not allow part-prepayment or foreclosure before the payment of a predetermined number of EMIs. Hence, those looking to prepay their loans in the future should compare the prepayment charges and related restrictions on their pre-approved personal loans offers with that of other personal loan schemes.

(This article is part of IndiaDotCom Pvt Ltd’s Consumer Connect Initiative. IDPL claims no editorial involvement and assumes no responsibility, liability or claims for any errors or omissions in the content of the article. The IDPL Editorial team is not responsible for this content.)