Modern era is an era of loans and EMIs (Equated Monthly Installments). It’s an era where the retail loan segment is witnessing a boom. Millions of average families have taken (and continue to take) a route of bank loans to fund their needs – be it personal, business or domestic needs.
Actually, gone are the days when taking a loan from banks was seen as a mark of disgrace in societies. But there is a radical change in such thinking. Today, the fast growing consumerism coupled with an emerging sea of personal needs has forced almost all segments of the population, especially the young generation, to embrace life on a bank loan.
Precisely, a bank loan has become a faithful companion to individuals as well as families. It would not be out of place to mention that the power of a bank loan is one of the common forces to drive social change. So availability of finance in the modern times holds the key to witnessing the living standard of societies getting modernized.
In other words, loans have now been shaping the way of life to realize growing aspirations as everything is available on EMI. Now people think EMI, eat EMI and breathe EMI.
Banks and financial institutions are keeping close track of their customers to pick any opportunity to fund their needs. In fact, they are always ready with a customized product or service to finance households, individuals and businesses.
There are innumerable loan schemes at the disposal of various customer segments and they have a lot of choice to fund their requirements. It’s a well-known process that customers are required to approach the bank with relevant documents confirming their eligibility to get a loan approved and disbursed. However, there is a ‘pre-approved’ loan option which banks are selling to catch hold of more and more customers into their fold. The customers are informed about approval of a loan facility for which they had not formally applied and the bank pro-actively communicates loan approval to them.
The term ‘pre-approved loans’ sounds exciting for the ease of access to funds, which otherwise borrowers usually find cumbersome or an uphill task to get a loan sanctioned and disbursed in their favour. For a common customer, ‘pre-approved’ loan offer is something unbelievable as they are accustomed to the hassles a loan aspirant normally faces while seeking sanction of even a small loan from a bank or a financial institution. Is pre-approved loan offer a gimmick or reality?
Some time back, one of my acquaintances was intimated about a pre-approved loan in his favour by a new generation private sector bank. He was asked to contact the bank branch and get the loan amount instantly disbursed without hassles. However, it was not so. Firstly, he was made to open a deposit account in the bank. Secondly, after opening the account, he was handed over a list of formalities to comply with to get the loan actually disbursed. Even as he handed over relevant documents to the bank to get the ‘pre-approved’ loan disbursed, the bank didn’t finance him to the extent he was intimated in the ‘pre-approved’ loan offer letter. After a lot of hassles, the bank disbursed the loan, but it was not at all pre-approved. In fact, the bank used the term – ‘pre-approved’ – to get new customers into its fold and above all, didn’t compromise on documentation which is traditionally required for sanctioning and disbursing a loan.
Pre-approved loans are often in principle agreed by the lender and subject to fulfilment of eligibility norms and applicable terms and conditions. Under pre-approved loans, banks usually know about the borrower’s creditworthiness. For example, they know about their credit score and income. However, they may still require documents such as an ITR return and the latest income proof to verify the repayment capacity and current income status.
Do you need to submit documents in a pre-approved loan?
You have to understand that traditionally eligibility is the first thing in getting a loan approved. Once, bank is sure about your eligibility, only then will the process be initiated to get it sanctioned and disbursed. Pre-approved loans are not disbursed without submitting relevant documents vouching your eligibility for the loan. Actually, pre-approved loans are often in principle agreed by the bank and subject to fulfillment of terms and conditions, including eligibility criteria envisaged in the scheme. Banks usually intimate pre-approved loan offers to customers with creditworthiness, which they assess through their own database.
To be precise, individuals with a high credit score, zero loan default history, high income as per the ITR, or if they maintain a big balance with the bank are deemed to be eligible for a pre-approved loan offer. However, you will have to submit documents such as an ITR return and the income proof to verify your repayment capacity.
Notably, some pre-approved loans offer bear expiry dates, meaning that they are time-bound and can expire after the given timeline.
Does this mean, pre-approved loans can also be rejected?
Yes. Banks can reject a loan on certain grounds. If you fail to submit certain documents and that too within the prescribed time limit, the bank can reject the pre-approved loan offer.
There is also a possibility of variation in the data on the basis of which the bank intimated you about pre-approved loan offers and the information provided by you. So in that case, the bank may reject the loan.
What is the mode of receiving pre-approved loan offers?
You can receive such offers through different channels like email, social media platforms such as through WhatsApp messages, SMS, on your mobile/online banking platforms, etc. You can even get a call from the bank’s customer care team.
Before going for the pre-approved loan, it would be useful to compare the interest rate, repayment schedule, loan processing charges, and other applicable terms and conditions. Compare these parameters with similar loan products offered by other banks in the vicinity. And never take a loan for the sake of eligibility and ease of access.
Meanwhile, in the given circumstances you have to be careful while receiving such offers. Don’t rule out such calls from fraudsters who may entice you with fake loan offers.
How should you behave in this era of loans?
Basically, you have to understand that affording a loan is different from EMI affordability. You may be able to afford an EMI for a few months or some years but not the actual Loan. For paying an EMI on a long term basis, you are ignoring future needs. You may consider an increase in your future income, but then inflation will also rise and there would be other added expenses simply adding to your financial burden. One more thing is that you may afford higher EMI today, but this way you would be having lesser chances of savings for your future.
So while opting for loans, it is always necessary to look beyond the initial years and calculate the potential impact that EMI payments will have on your future financial life. It is just a matter of good financial planning.
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.