Should You Take Pre Approved Personal Loan Or Not

Rajesh has been a credit card holder of a foreign bank since the last 2 years. He recently got a letter in the mail from the same bank saying that it had approved a Rs 2,14,000 loan for him at a lower interest rate than what was being offered to other customers. The letter said that all approvals had been given and on the production of some basic documents the loan would be disbursed in 2 days. This was a good way to take a loan but Rajesh was wondering as to what should be checked by him under such a situation.

Analysis

This situation represents a common experience for a lot of people who get such offers from their banks. This type of loan is known as a pre-approved personal loan where the bank has already approved the loan and the individual can avail of the amount after satisfaction of some of the basic conditions related to the loan. There are several points that need to be checked before a proper decision can be arrived at about the attractiveness of such a loan.

Need and amount

The first requirement that has to be considered is the need for such a borrowing. There are times when people just take the amount that is being offered to them as a loan but in reality they might not need the funds. That is why every person has to first ask themselves whether they actually need the money because there is a cost attached to it, and this can be saved if the loan is not taken.

The amount of loan is also a very vital component and has to be considered in all cases. In case of a pre-approved loan, the amount of loan is actually determined by the bank because they have some financial details of the customer based on which they decide the loan amount. For an individual this amount might not match with his/her actual requirements at a specific point of time. This is because of the fact that the amount decided might be very small or it could be much more than what is required. Both these conditions do not suit every person properly because they might be at divergence with the need. This requires that the borrower looks at the amount of the loan carefully and then goes in only for that particular amount which is required for their need.

Interest

The most important working for the decision making related to the pre-approved personal loan comes in the form of the interest rate that is actually charged. Banks make all kinds of efforts to ensure that the interest rate on the loan looks attractive, however this requires a very careful look in terms of the actual position. The first thing to be done in such a situation is to look at the rate that is actually being charged. This is done by undertaking a working, as in most cases a monthly figure is quoted. This will have to be changed to an annual figure to get a proper perspective.

In the above case, the annual figure for Rajesh works out to 21 per cent, which is a very high figure. But compared to the rate charged to other personal loan customers which is 23 per cent it is little lower. However if one compares it with other offerings in the market like personal loans with an interest rate of 16-18 per cent, then it is much higher. In such a situation, the individual would have to ensure that he/she makes the right decision about the rate that he/she selects and the provider that one goes to for the purpose of the personal loan.

Just because the loan is pre-approved it does not mean that there will not be any documents that have to be presented. The required documents have to be given and hence the conditions with respect to this area also have to be taken into consideration. There are often a lot of details that need to be fulfilled like income proof, address proof, identity proof, financial documents, etc. and this can cause some problems on meeting the requirements..