Are Your Pre-approved Loans Really Approved?

You must have received SMS’s from banks saying “Your pre-approved limit for debit card EMI-loan is Rs. 80,000. Avail and get free amazon voucher of Rs. 1000.” As exciting such offers may sound, pre-approved financial products or pre-qualified loans are not very uncommon today.

Simply put, a pre-approved loan is an offer for a loan based on your credit worthiness. Banks provide such loans to potential borrowers, based on fulfillment of certain pre-determined terms and conditions. The loans can be either secured, such as home loans, auto loans, or unsecured, such as personal loans and credit card loans. Even before you are made an offer, the bank has already assessed your financial standing and ability to repay the loan based on any previous loan you may have taken or on your credit card management skills. If you have good financial credibility, you are eligible for such offers.

This is typically done when information about the customer is available with the lender before-hand. “This could happen on account of the customer having a direct existing relationship with the lender (Liability/Asset Relationship) or if the customer is a part of the pool of customers of a partner to the lender (Indirect Relationship),” explained Anshul Swami, Head, Retail, Inclusion and Rural Products, RBL Bank.

However, the pre-approval does not necessarily mean that the bank is now bound to provide that personal loan to the individual. Adhil Shetty, CEO and Co-founder Bankbazaar.com, commented, “It is merely an offer from the bank. It is an indicator of your eligibility to get a loan. It does not guarantee that you will get the loan no matter what. You still have to go through all the required procedures that are involved in getting a loan.” Primarily there are two types of pre-approved loans and those are personal loan and small business loan. The eligibility criteria entirely depend on the risk appetite of the lender and the type of informations available about him or her. “With the growth of mobile telephony and APIs (for utility payments, digital wallets, POS data of merchants, UPI, Aadhar, MCA), the presence and availability of alternate data have significantly gone up,” explained Swami.

Just like any other loan, the bank runs a few parameters like credit-worthiness, authentication and verification checks at the minimum. In case of home loans, there are also property assessments. Having said that, one major advantage is that pre-approval loan establishes your credit worthiness, which reduces the processing time for loan disbursal. In case of home loans, the time for sanctions is much less as the bank would have already completed the preliminary verification of eligibility and credit rating and only the  second stage of property assessment would be remaining.

Pre-approved loans require one to go through authentication and verification to be satisfactorily completed before the loan is approved. Although pre-approved personal loans require minimal paperwork,one should keep some documents close at hand like PAN, Aadhar or Passport.

In case of secured loans like home loans, you will also need to provide the property papers, clearance certificates, tax receipts. – in short, everything associated with the usual home loan. BankBazaar has a paperless process for availing personal loans without any paper-based documentation involved.

Many times, loans are processed based on the acceptance of the customer and do not require any documentation. The process is truly instant and completely digital. A banking professional explained, “Some banks unsecured pre-approved loans do not require any documentation. These loans are designed to meet the needs of the ‘just in time’ customer, and hence the process only requires electronic consent, making it really instant  and hassle free.”

If one believes that your loan is guaranteed, the answer is no. The pre-approved loan is just an offer from the bank. The final sanction and disbursal will happen only after you go through all the required procedures that are involved in getting a loan. A person with poor CIBIL score cannot be given pre-approval loan. Such loans are always subject to terms and conditions.

Before, opting for such kind of loans, one needs to understand who is giving you the loan. Swami: added, “Pre-approved loans still do not ensure the 100 per cent acceptance rate of loan applications, thus leading to customer complaints. Further the higher chances of fraudulent applications, especially when customers are acquired through indirect relationships.”

That said, one should go with only reputed banks and companies.

It is agreed that pre-approved product with its uniqueness that is. lesser documentation, quick processing and lower interest rates can grab your attention, but do one really have the requirement to go for it? Even if one has a valid reason to go for such loans, it is advisable to compare all the interest rate that you can get from all other banks and companies offering pre-approval loans. Further as per experts, pre-approval is a mere process differentiation. A personal loan can be offered as a pre-approved loan or as per regular process. It is a cost-effective process and aims to create a hassle-free loan experience for the borrower.

If you are tight on your cash-flow, taking such loans would put you on more stressful situation. And you will default on this loan as well as other loans, which will spoil your CIBIL score. One should remember that pre-approval of loan should not be a reason, to get your approval process much faster. Avoid taking it if you  don’t have a really pressing need to take the loan.

himali@outlookindia.com