Personal loans: How is a pre-approved loan different from a regular one? See details here

If you fall short of money, then you can avail the option of raising a personal loan from a bank or non-banking financial company (NBFC). Some borrowers, meanwhile, are also offered pre-approved personal loans. In the case of a pre-approved loan, the borrowers don't need to apply to a financial institution or submit any documents.

Instead, they are given an offer for pre-approval which they can accept or decline, depending on the conditions attached. Typically, banks give pre-approved personal loan offers to their customers with a high credit score and whose loan liability is non-existent or marginal.

Some banks also offer pre-approved loans to their existing customers who already have a current loan, and this loan is given as a top-up on the current loan. Let us understand this in detail here.

What is a pre approved personal loan?

It is a loan offer given by a bank to its customers based on their credit history, income, and existing relationship with the bank.

These are 'pre-approved' since the bank has already determined that the customer meets certain eligibility criteria, thus removing the need for submitting documents or verification during the application process.

Key Features

Fast processing: Since the bank already has the customer's financial details, the loan can be disbursed quickly—sometimes instantly.

Minimal documentation: Pre-approved offers generally require fewer documents compared to standard personal loans.

No collateral: Like any regular personal loan, preapproved loans are unsecured loans, which means no collateral is required.

The steps to follow:

1. The bank assesses your credit score and financial history.

2. If you are eligible, it sends you an offer for pre-approved loan. This is sent either through email, SMS, or mobile app.

3. Thereafter, you can review the terms and conditions such as the loan amount, interest rate and loan tenure before deciding whether to accept.

Exercise caution

It is, meanwhile, vital that you exercise caution before opting for a pre-approved personal loan. These are some of the key factors that you can be careful about:

A. Hidden charges: Ensure you check for processing fees or prepayment penalties.

B. Interest rates: While the loan is pre-approved, the interest rates offered might not always be the lowest available.

C. Impact on credit score: If you apply for multiple loans or misuse the funds, it can affect your credit score. So, you need to be extra careful about this.