Consumers find Pre-approved Loans quite reasonable because it simply means receiving funds without a hitch. In most cases, such offers are available to clients with reliable credit score and record of payments.
Many people interested in understanding how Pre-approved Loans function and the advantages they provide have multiple misconceptions about them. This post will try to demystify some of the misconceptions about Pre-approved Loans and explain what the lending institution wants.
Myth 1: Guaranteed Pre-approved Loans
As much as people might wish for it, there is no such thing as a guaranteed loan. However, although pre-approved, these loans heavily rely on so many factors. This is because a lot may change from the time you receive such an offer to the time you finally secure the loan. For instance, your credit rating could plummet, or the policies of the lending institution may shift and impact the sum you will get in the end.
Myth 2: Only Perfect Credit Qualifies
Many think that only those applicants get loans who have good credit. While good credit is helpful, other things like your debt history also matter. Lending institutions see how much debt you have compared to your income. They also check to see how well you’ve paid back past loans.
Moreover, lending institutions look at how well your finances are in general. For instance, if you have secondary sources of revenue, how is your D/I ratio on the balance? etc. That means even those with low credit scores can secure the loans if they have a steady job and delay most of their expenses to settlement times. Further, different lending institutions may accept and check different credit scores from different agencies like Equifax and CIBIL – this will lead to a change in credit scores and, eventually, in the pre approved loan amount. Sometimes, one lending institution will refuse you credit because of your credit score, yet another lending institution will think you are credit-worthy.
Myth 3: Pre-approved Loans Cost More
The interest rates on Pre-approved Loans aren’t always on the higher side, but most people think they do. As long as lending institutions are sure the person will pay back the loan, interest rates remain reasonable. That said, it would help if you looked at what different lending institutions have to offer to get the best rate.
Furthermore, before you agree to a loan, you should always compare different lending institutions’ terms and interest rates. You might end up saving money (paying a lower interest) if you do this.
Myth 4: Pre-Approval Takes Long
Getting a Pre-approved Loan doesn’t take much time these days. As mentioned above, if your CIBIL score and the lending institution’s policies remain the same, you might get the funds in 10-15 minutes. Unfortunately, many people still think that getting funds from a Pre-approved Loan will take 2-3 days, just like securing a traditional personal loan.
Thanks to technology and programmed software along with AI and machine learning algorithms, systems can quickly evaluate your credit record, income, and other vital information to determine if you meet the requirements. If all’s good, you can get the funds instantly. That said, you should ensure that your documents are in order so everything happens smoothly.
Myth 5: All Pre-approved Loans Are the Same
Pre-approved Loans vary in terms of their offerings. Each loan has its own set of terms, fund amount, tenure, etc. Before choosing the ideal one, you should compare several loan interest rates first. Next, assess the tenure, pre-closure charges, processing fees and other similar information.
Moreover, it makes sense to check the loan documentation and talk to a loan customer success manager if possible. They will help you agree to any hidden charges or policies, though most NBFCs and banks are transparent in their loan terms to avoid legal trouble.
But as they say, vigilance is the best form of safety.
Myth 6: Pre-Approval Affects Credit Scores
A common concern that many buyers have is that pre-approval affects the credit score in one way or another. In fact, if the lending institutions who want to give you the loan are the ones who pull a credit report, they usually do what is known as the soft pull of the credit report, which is non-damaging. There might be a hard check later, which might have a negligible effect on your credit score after you give your permission for the credibility checks.
A “hard” CIBIL inquiry differs from a “soft” one. “Soft inquiries” are about getting a loan ahead of time and other things that will not hurt your credit score. A “hard inquiry,” or official request for credit, may lower your score, but not more than a few points.
Myth 7: Pre-approved Loans Lock You into a Single Lending Institution
Farther from the truth. A pre-approved personal loan does not bind you to the lending institution that issued it in India. You are not obligated to accept the loan offer and can choose to decline it or explore other options from different lending institutions. However, this common misconception can forbid borrowers from seeking better terms with some other lending institution. As a matter of fact, after receiving pre-approval, it’s wise to continue your search for other lending institutions and their offerings.
Comparing offers from numerous lending institutions can result in more advantageous loan terms and, perhaps, better interest rates. You can select any lending institution for your conclusive loan application, so weigh your options carefully to ensure you finalise the best financial deal.
This means setting aside time daily, say 30 minutes, and taking notes. Without a visual comparison of different lending institutions and their interest rates (along with other offerings), making a decision might feel overwhelming.
Conclusion
A Pre-approved 1 lakh personal Loan is one straightforward way to get funds. But some myths can make it hard to know what’s the right approach. The truth is that when borrowers know the full truth, they can make better choices and understand what lending institutions look for during pre-approval.
The bottom line? Getting a loan pre-approved doesn’t guarantee acceptance. Take your time to read the terms, consider your requirements, and avoid the myths discussed above.
Also Read: Tips to Grow Your Business with SME Loans
