Pre-approved Loans: Explanation and Facts
The pre-approval of loans is a marketing strategy which is adopted by the banks and other financial institutions in order to enhance their credit disbursal through cross selling products. Based on the existing information of the customer, loan products are sold to them. The process of pre-approval can be initiated by the customer or the financial institution. In case the pre-approval is done by the financial institution, it shows that they are cross selling their loan product to the customer based on his/her financial track record.
The meaning of pre-approval loan:
The term pre–approval is a principle approval which is granted by the entity to provide the customer with the required loan of a certain sum if the customer’s criterion matches. The pre-approved loans are of two types;
The secured loan:
This form of loan includes the pre-approved loans like the home loan, car loans, auto loans and so on.
The unsecured loan:
Unsecured loans include the pre–approved personal loan and the credit card loans. A bank generally studies the track record of the person like the presence of a salary account, the cash flows, the track record and others before granting the pre -approved loan. In case the customer has taken a loan in the past, the bank will be aware about the track record concerning the servicing of the loan.
Importance of pre-approval of the loan:
The process of pre-approval is basically a principle approval as mentioned earlier and henceforth it doesn’t mean that the customer will definitely get the loan. There are various factors which are a impact in order to get the loan approved. The loan will be granted only if the credibility and the criteria are fulfilled by the entity. The validity of the pre-approved loans is about 6 months and the processing of the loan begins from the day the application is sent. However, the loan will be granted to the customer within few hours if approved.
The eligibility to acquire a pre-approved loan:
- As mentioned earlier, a pre-approved loan is granted to people who match the criteria and have a clean track record.
- In case the customer has pre closed the earlier loan, there are possibilities that the bank can offer him the loan.
- There are also various other banks who grant the pre-approved loan to their customers even without the absence of a previous loan by them. However, there are certain conditions like the cash inflow, transactions and repayment track which should be as per the rule. There is a time limit to accept the pre-approved loan.
- In order to get a pre-approved loan, it is very important that all the necessary documents should be submitted. Documents like the account statement, salary slips, pan card details, income tax returns and other documents should be submitted to the bank. In case the individual is an in-house customer, the requirements will vary and will be lesser as the bank already possesses the information.
Benefits of a pre-approved loan:
It increases the bargaining power:
A pre-approved loan increases the bargaining power as the fact that the pre-approved loan is offered to the customer means that various other banks will also offer the customer a loan based on the financial credentials. However, the financial credentials include the credit history and cash flow. Perhaps the customer can leverage the pre-approved loan offer to get better rates from other banks as well.
Impact on the personal loan and the credit card loan:
A pre-approved loan is best for an individual who needs fund immediately. The money can be used for various requirements. Further, a pre-approved loan will also prevent an individual from borrowing emergency fund with higher rate of interest. A credit card loan has the higher rate of interest in comparison to other personal loans.
Pre-approved home loan:
Acquiring a pre -approved home loan will enhance the bargaining power of the customer as he/she will have the financial ability to close the transaction. Further, he/she will also ensure that he can choose a property within his budget.
Pre-approved car and auto loan:
Acquiring a pre-approved car and auto loan will set a budget for its customers. Also the customer will get a good deal and he can also close the transaction as per his/her wish.
Important points to acquire a pre-approved loan:
- Before you seek a pre-approved loan, you should decide if you actually need a pre-approved loan rather than going for it due to attractive offers.
- Know the benefits of a pre-approved loan before you go for it.
- Decide the right loan amount for yourself.
- Keep all the required documents in hand.
- Check for the interest rates.
