Be it planning your dream home or car or fulfilling any personal requirement a pre-approved loan can be helpful in meeting your goals as finance is one of the key factors which enhances our purchasing power when you are looking for a deal quickly to close.
People mostly make a
mistake when they are in the process of finalizing deals as they engage in loan
approval exercise. some time, they miss the opportunity to get a better deal.
Sometimes
pre-approved longs give financial freedom when we are in the process of closing
the deal because if you know your own financial position then you are in a
better position to take a decision
Why you need Loan
Let us find out what
is the right process to get a loan when required. When I focus on the need of
the world it means we must have a specific reason for the loan, don't take
unnecessary unless there is a need.
Some of the factors
that need attention are retail inflation, fixed or variable interest rates,
high processing fees, etc.
What is pre-approved loan
Pre-approval is an
approval in principle based on the information provided at the time of
application.
The eligibility
criteria depend on the repayment capacity like credit score, salary income or
earnings from business, past credit history and current relationship with the
bank.
However, it isn't a
guarantee that the loan will be funded, as once deals are closed with sellers
like home or car or any other thing, you'll still need to complete a full
application which requires final unconditional approval by your lender.
How to get pre-approved loan
Banks prepare a list
of customers who have good credit score and past history with the Bank and such
customer lists prepared at their zonal office or regional office of bank such
selected customer details are shared with the respective branch of bank which
has a customer account.
Such respective
branch office officer informs to the customer regarding the pre-approved loan
offer on a regular basis and further preference given to those customers who
are interested to take a loan.
A mortgage pre-approval
usually lasts for sixty to ninety days. Once it expires, you may connect with
your bank, this usually does not take an excessive amount of time to approve
again as they already have all details.
In general bank
charge process fee which can be 0.25% -1% depends on the various factors
however it can be negotiable and can be less than that what they charge.
Pre-approved offers
do not affect your credit score unless you follow through and apply for the
credit. As the lender has identified you as a good prospect based on
information as per credit history, however the pre-approval does not give a
guarantee that you'll get the loan.
To get pre-approved
you'll need proof of assets and income, good credit history, employment verification,
and other types of documentation your bank may require.
Type of pre-approved loan
There are two types
of pre-approved loan first one is known as Term loan and second known as
demand loan. Term loans are such loans which offer more than 36 months like car
loan, home loan, personal loan.
Demand loans are less than 36
months and they are like short term loans. Such loans are mostly promoted by
the bank from time to time and offer to customers with different lucrative
schemes and benefits.
Advantage of pre-approved loan
Loan disbursement
fast as it's already approved even you can get the loan amount disbursed within
a day to your account this is because the bank already has your details.
If you looking to start business with zero investment then such pre-approved loan helpful to provide instant quick money to invest.
Pre-approved loan can
help you get a flexible tenure on repayment option as the banks would trust you
with your credit history, however you must carefully consider your loan tenure
and repayment option.
As you received a
pre-approved loan option it means you have a good credit history you can get
competitive interest rates on such loans, with such a good credit record the
bank would offer low-interest rates on pre-approved loans.
Pre-approved loans
offer less or paperless documentation as your KYC, income, identity proof and
other details already with the lender.
the customer is in a
better position to close the deal with the seller as they already have loan
approval. as the approval received with all checks means having a pre-approved
home loan also identifies you as a serious buyer in the eyes of the seller
which can help you to negotiate for a better deal.
Disadvantage of pre-approved loan
Sometimes people take
out a loan because it was already approved due to the psychological impact of
an available fiancé without understanding the necessity of the loan.
Processing fee impact
if the validity of the approval letter expires hence the customer bound to
close the deal with in the time limit.
Pre-approved loans
have floating interest rates that may increase for pre-approved customers.
Therefore, check the interest rates with your lender before accepting a loan
offer although it is not mandatory that the loan interest rate will increase.
However, If the
interest rates fall, during the pre-approval and disbursal process, the
customer may not be able to benefit from the reduced rates.
it's not guaranteed
that the principal amount approved will get the same amount disbursed to the
customer. Pre-approved offer only indicates that you’re eligible for the loan.
It doesn’t mean that you’ll get approved for the loan definitely.
Conclusion
Loan is a finance
instrument which helps in fulfilling our dreams, however it is important to
know the details before applying for the loan, one must know all the terms and
conditions which helps in understanding all the pros and cons.
Clever utilization of
credit facility is always appreciable though unnecessary participation creates
financial burden.
Reviewed by Mr. Pradhan
on
June 14, 2021
Rating:
