There is a wide range of options available when it comes to getting funds for an emergency. A popular choice is personal loans. However, your personal loan application may be delayed for a variety of reasons. Some of these include insufficient documentation, a low credit score, or income below a minimum specified limit. In such cases, you can apply for a pre-approved personal loan.
What are pre-approved loans, and can anybody apply for them? To know the answers to these questions and more, read this complete guide on pre-approved personal loans.
Understanding Pre-Approved Personal Loans
Pre-approved personal loans are offered to specific customers who meet the following criteria:
- A decent credit score
- Good loan repayment history
- Minimum Income
- Low debt-to-income ratio
If you meet these criteria, you qualify for pre-approved loans without collateral (unsecured loans) and minimum paperwork. Such loans are offered by both banks and NBFCs (Non-banking financial companies).
How Can You Use a Pre-Approved Loan?
There are different purposes for which pre-approved loans can be used. They include:
- Travel to any destination locally, nationally, or internationally
- Wedding expenses
- Buying an expensive gadget like a tablet or a smartphone
- Renovating your home
- Consolidation of existing loans
Characteristics of Pre-Approved Personal Loans
Here are some features of pre-approved personal loans:
Since the lender checks your creditworthiness before accepting your application, the interest rates of such loans are usually lower than regular personal loans.
Tenure of Loan:
Pre-approved loans are usually offered for a period of 1 to 5 years.
Speed of Processing Loan:
You can get such loans in a matter of minutes or a few days, depending on your documentation and credit score.
No Collateral Required:
Since this is an unsecured loan, you don’t need any collateral.
You can choose a repayment period to suit your cash flows.
Little or No Documentation
You don’t need to worry about pages of documentation with such pre-approved loans.
You don’t need to visit the bank or stand in a queue to apply for such loans. It takes just a few minutes to apply for pre-approved loans online if you have all the required documents.
How to Improve Your Chances of Getting Pre-Approved Personal Loans?
Here are some ways to ensure that your application is approved:
Maintain a High Credit Score
When you maintain a credit score of 750 or more, banks and NBFCs are more likely to accept your application. They know that the loan will be repaid on time.
To reduce the chances of EMI (Equated Monthly Installment) default, limit your EMI to 40% of your take-home salary. The lower the debt-to-income ratio, the higher the chances of getting the loan.
Check Credit Card Spending
Use your credit card responsibly for essential monthly expenses. When you repay your credit card bills within the billing cycle, your credit score and history both improve.
Avoid Multiple Loans
Having a good credit score does not mean you go for multiple loans. Analyze your needs before you apply for a loan. Find out how much you can afford using a personal loan interest rate calculator. Enter the required information, like loan amount, tenure, and interest rate, to get the monthly EMI.
Have a Mixed Loan Portfolio
Use a mix of both secured and unsecured loans in your portfolio to improve your credit score.
Try Debt Consolidation
If you have high-interest loans, try to repay them first, and keep your total interest obligation on loans low.
Don’t Add to Your Current Loan
If you have already opted for any pre-approved personal loans in the last six months, try avoiding further loans. Banks could doubt your loan repayment capacity in such cases.
Points to Consider Before Applying for Pre-Approved Loans
Keep these factors in mind when applying for pre-approved loans:
Time Bound Offers
Pre-approved loans are generally limited-period offers. You need to apply for them well before the expiry date to be considered eligible.
Know the Fee Structure
Before you apply for pre-approved personal loans, know all fees associated with such loans. These include foreclosure, prepayment, and processing fees.
With online portals offering free information on personal loans, find out the lenders with the best offers. Compare their rates and then finalize the loan.
What Documents Do You Need for Pre-Approved Personal Loans
Here are some important documents you need for such loans:
Aadhar cards, PAN cards, or passports are accepted.
Eligible documents include a Driving License, Aadhar card, and passport.
Last 6 months’ bank statement and your latest salary slip would be required.
Pre-approved personal loans are a lifesaver when it comes to financial emergencies. However, like any other loan, they have certain eligibility criteria which you need to check. If you have a low credit score, there are ways to improve it. With disciplined spending, you can get a higher credit score and be eligible for pre-approved loans.
Frequently Asked Questions
1. What is a pre-approved personal loan offer?
- A pre-approved personal loan offer is a financial product offered by banks or financial institutions to individuals who meet certain eligibility criteria. It means that the lender has already assessed your creditworthiness and determined that you are eligible for a loan of a specific amount and interest rate.
2. How do I receive a pre-approved personal loan offer?
- Lenders typically extend pre-approved loan offers to individuals based on their credit history and financial profile. You may receive these offers through emails, SMS, or postal mail. You can also check with your bank to see if you have any pre-approved offers.
3. What are the benefits of a pre-approved personal loan offer?
- The benefits include:
- Quick access to funds: You can get the loan faster since the initial approval process is already completed.
- Competitive interest rates: Pre-approved offers often come with attractive interest rates.
- Simplified documentation: Fewer documents are usually required since the lender has already verified your information.
- Flexibility: You can use the loan amount for various purposes like debt consolidation, travel, medical expenses, etc.
4. Do I have to accept a pre-approved personal loan offer?
- No, you are not obligated to accept a pre-approved offer. It’s your choice whether to proceed with the loan or not. You can compare the offer with other options to see if it suits your needs.
5. What factors determine eligibility for a pre-approved personal loan offer?
- Eligibility criteria may vary between lenders, but common factors include a good credit score, stable income, and a positive repayment history. Lenders may also consider your employment history and age.
6. Are pre-approved offers guaranteed loans?
- Pre-approved offers are not guaranteed loans. While they indicate a high likelihood of approval, the final decision depends on the lender’s verification of your documents and the information you provided.
7. How long is a pre-approved personal loan offer valid?
- The validity period varies between lenders but is typically around 15 to 30 days. It’s essential to check the offer’s expiration date and act accordingly.
8. Can I negotiate the terms of a pre-approved personal loan offer?
- Yes, you can often negotiate the loan terms, such as the interest rate or loan amount, with the lender to better align with your needs and financial situation.
9. What should I consider before accepting a pre-approved personal loan offer?
- Before accepting an offer, compare it with other loan options, review the interest rate, processing fees, and other terms. Ensure that the loan aligns with your financial goals and needs.
10. How can I improve my chances of receiving pre-approved loan offers?
To increase your chances, maintain a good credit score, pay bills on time, and manage your finances responsibly. Also, keep your contact information updated with your bank to receive such offers.
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