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Pre-Approved Loan: What Is It? Can A Pre-Approved Loan Be Rejected?

Pre-Approved Loan
Your application for a pre-approved personal loan of Rs 4,00,000/- has been approved. Contact your branch today.”
All of us are familiar with this kind of SMS, e-mail, or even phone call about pre-approved personal loans from financial institutions. But many of us do not understand what it is all about. So, let’s dive into it and understand pre-approved loans better.
 

What is a Pre-Approved Loan offer?

Pre-approval is the assessment of a borrower’s ability to secure a loan based on their track record with repayment of debts. Financial institutions provide these loans to motivate people to borrow money from them without going through the hassle of loan approval process. A pre-approved loan is usually offered to people with a clean track record of loan repayment and a good credit score because the lender believes they will repay the money on time. Some lenders pre-approve the personal loan to their existing consumers based on certain conditions, such as transactions and cash inflow in reference to their salary account.
 
Thus, a pre-approved loan is basically a loan that allows one to borrow money from financial institutions without the need for further approval and with minimal documentation. The entire process is remarkably simple and quick. 
 

What are the Features of a Pre-Approved Personal Loan?

Through the pre-approval process, financial institutions can disburse an instant loan to a selected customer. The interest rate for personal loans varies widely between financial institutions, for which you must check with the lending institution.

The primary advantages of a pre-approved loan are as follows:
  • It gets processed quickly and with little paperwork.
  • As the financial institutions have assessed your credit history, they know that you are safe to grant the loan. Therefore, the interest rates on these loans are quite favourable.
  • You may get exclusive offers from the lender, especially if you are their existing customer.
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Also Read: How To Get Pre-Approved For A Two-Wheeler Loan

How Does a Pre-Approved Personal Loan Work? 

The financial institution that offers a pre-approved personal loan goes through a pre-approval process. This process involves checking your debt history and financial credibility. It also looks at other things such as your credit behaviour and income. If the institution concludes that you are a financially responsible individual, they might offer you a pre-approved loan.
 

How do you get Pre-Approved for a Loan?

The financial institution granting the loan will look at the following criteria during the loan pre-approval process:
  • Checking whether you have a good credit score or not.
  • Review of your payment and transaction history.
  • Verifying if you have made past debt repayments on time.
  • Checking if you are an existing customer of the financial institution — existing customers have a higher chance of securing a pre-approved loan.
 

Can the Pre-Approved Loan be Rejected?

A credit score shares your transaction history with other financial institutions in terms of credit card debt, EMI payments, loan payments, etc. The credit score also tells if you are making all the payments on time or have defaulted on them. A credit score of 750 or above is considered good and is supposed to work in your favour, but it does not ensure that you qualify for a loan. Your loan may be declined after pre-approval even with a good credit score. That sounds quite strange, but more factors play a role in securing a loan, even if it is pre-approved.

Apart from the numerical credit score, the credit report also contains remarks and comments by lenders. The financial institutions sometimes offer scope to settle your loan at a smaller amount than the combined EMI or offer a reduced interest rate. If you repay the loan on terms different from those of the lender, your credit report will contain certain remarks. These remarks might work against your eligibility criteria for the personal loan. In addition, if there is any reference of DPD (Days Past Due), the financial institution can reject your pre-approved loan because they might consider lending to you as risky.
A guarantor is considered responsible for loan repayment of a borrower for personal loan. So, if you were a guarantor to a loan defaulter, your credit score may be negatively affected. In such a scenario, financial institutions can also decline a personal loan after pre-approval.
 

Conclusion

Pre-approved loans have many advantages — they are hassle-free, have low interest rates, and have a minimal processing time. Therefore, they are a fast way to fund one’s urgent financial needs. However, you should be aware of the applicable interest rate before accepting the pre-approved loan. It is also necessary that you always repay the loan on time to maintain your creditworthiness.
 


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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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