How Pre-approved Loans Simplify the Borrowing Process

A pre-approved loan is a “special offer” made by banks or financial institutions to specific customers. Usually, this offer is based on the customer’s financial history and creditworthiness. However, being pre-approved does not guarantee that you will get the loan. It simply means that the lending institution believes you are likely to qualify for it based on your previous records. These include home loans, business loans, and personal loans. Also, it offers several EMI offers to purchase products from the online stores.

Generally, pre-approved loans are offered to existing customers who have shown good repayment behaviour. No collateral or security is needed for this type of loan. Also, the approval process is faster than a regular loan. In this article, let’s gain more clarity and see why you should consider taking a pre-approved loan. Also, we will tell you the several factors to consider before availing one.

Why should you prefer pre-approved loans

Pre-approved loans get approved faster because the lender has already checked your creditworthiness in advance. Since the bank already trusts your financial background, the process is quicker than standard personal loans. In some cases, the money might even be sent to you within minutes. Also, you are not required to submit a lot of paperwork, which makes the process hassle-free.

Additionally, if your credit history is good, you get a lower interest rate than what is usually offered with regular loans. This significantly reduces your borrowing cost. For its customers, NBFCs offers several pre-approved loans at attractive interest rates. These loans are offered for home, business, personal needs, and EMI networks to purchase products from online stores.

With pre-approved loans, you don’t have to wait in lines or fill out long forms. Everything is prepared beforehand, and after a simple one-step verification process, the money can be deposited into your account.

Things to consider before taking pre-approved loans

Please note that a pre-approved loan offer is not a guarantee that you will get the loan. It is just an “invitation to apply”, based on your past financial behaviour. Once you decide to go ahead, the lender will still review your current financial situation before giving final approval. Usually, they check your income, credit score, and other factors related to financial capacity.

For a greater understanding, consider the factors below before availing of a pre-approved loan:

1. Compare interest rates

Even though you may have a pre-approved loan offer, it is important to compare the interest rates with other lenders. Pre-approval is based on your relationship with your current lender, but sometimes other banks can offer better rates depending on your credit score. Even a small difference in interest rates can save you a lot of money over the loan period.

2. Pre-approved loans have a validity period

Pre-approved loan offers are not open forever. These offers usually have a validity period (usually ranging from two to six months) depending on the lender. This means you need to act within this timeframe if you want to take advantage of the loan. If you don’t apply within the given time, the offer may expire, and you might have to go through the regular approval process again.

Therefore, it is important to check the expiry date of your pre-approved loan offer and act accordingly.

3. Risk of overborrowing

Pre-approved loans are convenient as you do not have to complete the entire loan application process. However, this easy access to funds might also tempt you to borrow more than you actually need. This leads to paying extra interest, which becomes a burden in the long run. Therefore, before accepting any loan, you must carefully assess how much money you need and if you can comfortably repay it.

4. Loan-related charges

Pre-approved loans often come with additional charges such as processing fees, prepayment penalties, or other hidden costs. Be aware that these charges add to the overall cost of the loan. Hence, it is important to read the terms carefully and understand all the fees involved before agreeing to the loan.

Pre-approved loans offer easy access to funds since the lender has already reviewed your financial history. They come with benefits like quicker approval, less paperwork, and often lower interest rates.

However, it’s important to remember that pre-approval doesn’t guarantee the loan. Also, before taking a pre-approved loan, be mindful of the loan’s validity period and any additional charges like processing fees. Additionally, avoid overborrowing, as it can lead to unnecessary financial strain.

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