If you have maintained a good credit score for a long time, shown good repayment record and have seen steady growth in your income, you may be getting pre-approved offers for personal loan and credit cards. This essentially means that the lender is ready to offer you a loan or a credit card, based on the initial screening, which may include your credit score and other factors that affect your creditworthiness. Such offers may also come from financial marketplaces like Paisabazaar.com but the loan will be granted only by a bank or NBFC.

A pre-approved loan offer is merely the offer for a loan and does not guarantee that your app- lication will be approved once you go ahead with the offer. The chances of approval may be higher in case of such offers but your application might still be rejected if you do not meet certain conditions or internal policies of the lender.

How is a pre-approved loan offer different from the normal application process?

When you apply for a loan or a credit card without pre-approved offer, the process starts with the initial screening of your credit profile. The lender pulls your credit report from one of the bureaus to check your creditworthiness on the basis of past repayment behaviour, total dues, income to debt ratio, etc. Once the bank is satisfied with your current credit situation, they will move ahead with the application. You may also be required to submit certain documents, depending on the lender’s internal policies.

With a pre-approved offer, the initial screening is already completed. When a lender offers you a loan, it means they find you eligible based on your credit score and other basic criteria. This offer would also have a pre-approved loan amount. For example, if HDFC Bank offers you a pre-approved loan of Rs. 1.5 Lakh, it means that you can avail any amount up to Rs. 1.5 Lakh, but if you need a loan of Rs. 2 Lakh, you may have to go through the entire application process.

However, even with pre-approved offers, you may still be required to produce certain documents such as proof of income, bank statement, proof of residence, etc. Discrepancies in any of these documents can lead to rejection, even if you had a pre-approved offer.

How do lenders ascertain your eligibility for pre-approved offers?

You are more likely to get pre-approved offers from lenders you are already associated with, based on your repayment track record and overall creditworthiness. However, other banks and NBFCs may also extend pre-approved offers to you, if you meet one or more of the following conditions:

• You have an excellent credit score, preferably above 750
• You are employed with a renowned organization and have stable income
• You have shown discipline in previous loan repayments
• You never miss or delay your credit card dues or loan EMIs
• You have always maintained a sufficient balance in your savings account

What are the advantages of pre-approved loan or credit card offers?

Pre-approved offers, especially loans, can be very helpful as they come with the following benefits:

1. Quick processing: With pre-approved loans, the initial screening is already completed, reducing your application process by a few steps. This ensures quick processing of your application, making it a great option in case of financial emergencies.
2. Competitive Rates of Interest: Pre-approved offers, especially when coming from a lender you are already associated with, can offer you lower rates of interest, in comparison to a loan that you would avail from a different lender.
3. Better Terms: If you are already associated with the lender, you might be able to negotiate a better deal such as a low or no processing fee offer.

Should you opt for pre-approved loan or credit cards?

While pre-approved loans come in handy in case of financial emergencies, you should not opt for an offer just because you are pre-approved. When you avail the offer, you agree to the terms of the loan including the interest rate and other fees and charges. You will have to pay back the loan along with the interest.

Similarly, you should avail pre-approved credit cards only if they match your spending habits and would help you save a substantial amount on your frequent purchases. For example, if you mostly shop online but rarely travel and you have a pre-approved offer for a credit card that is co-branded with an airline, you should avoid opting for this card as you would not be able to maximize the benefits offered on the card. Instead, you should look for one that comes with benefits inclined towards online shopping.

Pre-approved offers can be very helpful. However, like any other financial product, you must exercise caution when availing such offers. Read about all the terms and conditions in detail, compare the interest rates with those offered by other lenders and then proceed.