6 Things You Should Know About Pre-Approved Personal Loans

In today’s fast-paced world, access to instant credit can offer much-needed financial flexibility. Whether you’re looking to cover marriage or education expenses or a medical emergency, personal loans often provide a reliable solution. Among these, pre-approved personal loans stand out for their speed, convenience, and minimal paperwork.

A pre-approved personal loan is a loan offer extended by a lender to its select existing customers having a good credit profile. Unlike regular personal loans that require detailed verification, these offers are based on your creditworthiness and existing relationship with the lender, often allowing funds to be disbursed within minutes to hours. Further, most pre-approved offers come with a limited validity period, after which the offer expires or terms may change.

Before taking up such an offer, however, it’s important to understand how pre-approved loans work and what to watch out for. Here are six important aspects you should know:-

1. Time Taken for Loan Processing & Disbursal

Since initial credit checks are already done, pre-approved loans can be disbursed within hours or on the same day. Individuals with urgent financial needs can check with their current banks or NBFCs about their pre-approved eligibility for personal loans.

Most banks and NBFCs offer end-to-end digital loan journeys, where you can view and apply for a pre-approved loan through mobile banking apps or internet banking. For instance, SBI offers a pre-approved personal loan via the YONO App or through net banking. To check your eligibility — SMS “PAPL<space><last 4 digits of your SBI Savings Bank Account No.>” to 567676.

2. Minimal or No Documentation

Fresh documentation is usually not required to process a loan application, as the lender already has your necessary KYC documents. This allows for faster disbursal and eliminates the need for completing multiple documents.

3. Interest Rates May Vary

Receiving a pre-approved offer does not guarantee the lowest interest rates. Check pre-approved personal loan interest rates with your current bank/NBFC, as most lenders provide preferential rates to their existing customers. Also, compare personal loan rates from other lenders, as rates can vary among lenders for the same applicant.

4. Eligibility Criteria

Individuals with good credit profiles are eligible for pre-approved personal loans. Before extending pre-approved offers, lenders consider factors such as –

• Credit score,
• Income,
• Employment type,
• Existing debt obligations,
• Employer’s profile, etc.

Remember, a pre-approved offer is an ‘Invitation to Apply’. Such an offer can be withdrawn during the application process if there are any adverse changes in the customer’s credit score, income, or other relevant factors.

5. Repayment Tenure

The repayment tenure for pre-approved offers is similar to that of regular personal loans. The tenure usually ranges from 1 to 5 years, with some lenders offering even longer terms. Choose your tenure based on your repayment capacity:-

• Go for a longer tenure if your monthly budget is tight – it lowers your EMI but increases overall interest cost. You can reduce interest costs later by making part-prepayments when you have surplus funds.
• Choose a shorter tenure if you can afford higher EMIs – it helps you repay the loan faster and save on total interest.

6. Processing Fees & Other Charges

The processing fees are usually the same or lower than those charged for regular personal loans, which can go up to 4% of the loan amount. Some lenders may cap or waive the processing fee during special campaigns or festive seasons. Compare the processing fees of pre-approved offers with those of regular personal loans, as such fees constitute a significant proportion of the overall borrowing costs.

Note that missing your personal loan EMIs can lead to penal charges, which can increase your total cost of your loan and impact your credit score.