Spend, Save and Invest Smartly
You receive SMS’s from banks telling you that they have approved a loan for you, and to avail it, you must contact the bank branch. You might also get an email or an SMS saying you are eligible for a credit card and the bank is ready to give you credit up to a certain limit.
You would receive such messages from your bank, if you have a salary account with them. If you have availed a loan from your bank, say a personal loan or a credit card in the past then you could get SMS’s asking you to take a pre-approved loan.
Remember: Most of the time you get pre-approved loans from your bank where you have a salary account or you already have availed a loan or a credit card.
Higher is your need for a loan, less likely are you going to get it. You need to remember that a bank sanctions you a loan, only if you can prove you don’t need it. Banks believe that if you need a loan badly, you are a risky customer to lend to. It is likely that you would not repay the loan, or fall behind in your payments. If you are getting offers from your bank for a pre-approved loan, it means your bank regards you as a customer who will repay the loan. This is a good sign for you. Banks also send these messages, asking you to avail pre-approved loans to fulfill their cross selling needs. If you are an existing customer of the bank (say you have a salary account with them), then the bank wants you to avail another product from them say a loan. The bank is baiting you to avail products (say a loan or a credit card), from them.
You get an SMS or an email from a bank asking you to avail a pre-approved loan. Does this mean you just have to drop in at the bank branch and the loan is yours? No, You have to fulfill certain eligibility criteria before you can avail a pre-approved loan.
Let us say you have a salary account or a savings bank account with your bank. The bank has an idea of how much money you have in your account. The bank sends an SMS asking, if you would like to take a pre-approved loan. Only if you approach the bank showing interest to avail a pre-approved loan, does the bank check your eligibility for the loan.
If you avail a pre-approved loan from your bank, the PAN details, residence and identity proof required for KYC (Know Your Customer), norms is already available with the bank.
The bank may ask you for additional documents such as your salary slip and the 2 years IT return.
Remember: Pre-approved loans have a validity period up to 6 months. Many banks have a validity period of just 2-3 months.
Your bank checks if the pre-approved loan you seek is a secured or an unsecured loan. If you want an unsecured loan such as a personal loan (no collateral required), or a credit card (borrow now pay later), then the bank will check your credit score from cibil before sanctioning you the pre-approved loan. Banks do not check your cibil score before sending you SMS’s for a pre-approved loan. That comes later. If your cibil score is low, then forget that pre-approved loan. If you apply for a pre approved loan, say a home loan or a car loan (secured with an asset such as a car or a house), the bank will check the quality of the asset.
Your bank might offer you interest on your pre-approved loan at a discount. You get this loan at lower interest rates than existing customers of the bank. However you need to realize that just because your bank offers you a pre-approved loan at a lower interest rate, you must avail it. You can use this offer as a bargaining chip and negotiate for lower interest rates with other banks. If your bank is offering you a loan, then other banks too would offer you a loan.
Some banks do not charge a loan processing fee for a pre-approved loan. Many private banks charge a fee for processing your pre-approved loan. However Private Banks might refund the loan processing fees, if your pre-approved loan is sanctioned.
You have decided to buy a property, but the bank is taking too long to sanction your home loan. This property has now been sold to another buyer. This unpleasant situation can be avoided by availing a pre-approved home loan.
You can avail a pre-approved home loan, even if you have not yet finalized a property. Pre-approved home loans have a validity period. You must choose your property within this time period. You benefit by availing a pre-approved home loan, as you already know the amount of loan you have in hand. You have to make a down payment to the builder, for the rest of the amount the house costs.
Validity: The pre-approved loan is valid for a time period of 1-6 months, provided certain conditions such as your income, does not change.
Criteria: Home loan is a secured loan and the bank checks your cibil score. The bank will do a due diligence (check the property and all documents thoroughly), before disbursing the home loan amounts.
Benefits: You can bargain with the builder from a position of strength. The builder knows that you have the money ready as you have availed a pre-approved loan. You could get concessions/discounts from the builder.
Drawbacks: If you do not decide on your home/property within the validity period you lose the loan processing fees. If the property you choose is very costly vis-a-vis the pre-approved loan amount, you might not be able to afford the down payment.
Remember: You must avail a pre-approved loan only if you need it.