What is a Pre-Approved Personal Loan? How does it work?
If you have ever received a notification saying "You are eligible for a pre-approved loan!" you may have wondered what it means and whether you should consider the offer. A pre-approved personal loan online helps streamline your application by showing the loan amount and interest rate available based on the lender’s criteria and verification.
In this blog, we will understand what quick personal loan pre-approval means, how it works, the eligibility criteria, and the benefits of getting pre-approval.
What is a Pre-Approved Personal Loan?
Banks and NBFCs offer personal loans through pre-approved offers, which they may extend to select individuals based on their credit history, repayment track record, and salary level. A pre-approved offer means you may qualify for a personal loan based on the lender's preliminary evaluation. However, final approval and sanction still depend on additional verification and other conditions set by the lender.
Taking out a pre-approved personal loan can make the borrowing process easier and more convenient, since the lender evaluates some of your details and eligibility criteria in advance.
How Do Pre-approved Personal Loan Apps Work?
Loan Inquiry
You need to fill out an online application form to provide your basic information, such as:
Your Full Name
Contact Information
Credit score
Required loan amount
Loan purpose
Income and employment details
For certain pre-qualified offers that the lender has approved, there might already be enough information known about you due to your existing relationship.
Credit Assessment
The lender performs a soft credit inquiry that does not impact your credit score, unlike hard inquiries. You may need a hard credit inquiry later when you apply for the loan. It helps the lender get a basic idea of your creditworthiness, such as:
Credit History
Existing loans and debts
Repayment behaviour
Income and other financial details
Pre-approval Offer
If you qualify under the lender's eligibility requirements, you may be offered a pre-approved loan facility. Pre-approved loans will include details such as the loan amount, interest rate, and repayment period.
Eligibility Criteria for Applying for a Pre-Approved Personal Loan
Credit Score
A good credit score will increase your likelihood of being offered a pre-approved personal loan and better loan terms. Lenders may also consider your repayment history when determining your creditworthiness.
A Stable Monthly Income
In general, lenders prefer that you have a steady source of income from which you can pay back the money borrowed. Salaried applicants may need documents like salary slips and bank statements, while self-employed applicants may need to provide tax returns or other financial documents, as required by the lender.
Debt-to-Income Ratio (DTI)
DTI is the percentage of your monthly income that goes toward your monthly EMIs. A low DTI implies that you have sufficient income to handle another loan. Lenders may consider your existing EMIs, total income, and other financial liabilities when assessing your ability to repay. Your acceptable DTI, or income-to-obligation ratio, may vary by lender.
Benefits of Getting a Pre-Approved Personal Loan
Quick Loan Approval: You do not need to wait for too long to get your loan approved.
Minimal Documentation: You only need to submit fewer documents or less information.
Know Your Potential: Understand how much you can borrow before applying, based on your eligibility.
Better Financial Planning: Know the indicative loan amount, interest rate, and repayment term to calculate the approximate EMI and budget accordingly.
No Credit Score Impact: Since it involves only a soft pull for the initial assessment, it generally does not affect your credit score.
Conclusion
A pre-approved personal loan makes borrowing easier as it provides an estimate of the amount of money you may receive, the rate of interest that will be charged, and the tenure in which you need to repay it. Chinmay Finlease Limited is offering a personal loan worth ₹75,000, provided you meet the relevant eligibility criteria. Accepting a pre-approved personal loan offer does not guarantee loan approval. We conduct certain checks and verifications before approving the loan. If a soft credit check is performed at the time of preliminary screening, then it does not impact your credit score; however, a hard credit check may be performed at the time of formal loan application.
In any case, before accepting a pre-approved personal loan offer, evaluate the interest rate, processing fees, repayment tenure, EMI, and other conditions that fit your budget and expectations.
Frequently Asked Questions
Is it a good idea to take out a pre-approved personal loan?
Yes, it's a good idea to take out a pre-approved personal loan. Lenders typically offer pre-approved personal loans after verifying your eligibility.
Does the pre-approved loan mean I will definitely get the loan?
Not necessarily. An approved offer does not automatically mean approval and subsequent disbursement of the loan. You may need additional verification and documents to confirm your eligibility.
Who provides pre-approved loans?
Many banks and non-banking financial companies (NBFCs) offer pre-approved personal loan schemes. Contact your bank or lender to learn about any pre-approved loan offers.
Will a pre-approved personal loan affect my credit score?
A pre-approved loan will have no impact on your credit score if the lender has used a soft inquiry to conduct their analysis. However, a hard inquiry may occur when you apply for the loan.