It is not uncommon to receive promotional or marketing calls from financial companies asking if you are interested in a loan, but some of them may be real pre-approved loans offered by your bank.

This type of loan is generally granted to a small group of clients. These customers are generally very responsible debtors with a strong credit history. As the name suggests, these loans or lines of credit are pre-approved by lenders or lending platforms. Pre-approval is based on reviewing the customer’s credit history and financial health.

So, if you are looking to take out a personal or car loan, it makes sense to check with your lender to see if you qualify for a pre-approved loan. “Pre-approved loans help maintain liquidity while covering up-front expenses. Unlike other traditional loans, they don’t require any collateral, ”says Satyam Kumar, CEO and co-founder of LoanTap, a digital lending platform.

A number of banks such as SBI, ICICI Bank, HDFC Bank, IDFC First Bank and Aditya Birla Capital offer pre-approved loans. Some non-bank financial companies (NBFCs) also offer pre-approved loans.

How do pre-approved loans work?

In pre-approved loans, interest is charged only on the amount used by the customer and not on the qualifying credit limit. “The customer can use part of the available credit limit according to their needs and will always have access to the remaining amount, if necessary. It allows clients to customize their IMEs, thereby meeting their financial needs, ”says Kumar.

Benefits of pre-approved loans

Competitive interest rates: If you have been disciplined with your finances and have been successful in maintaining a good credit history, the lender might offer you a competitive interest rate because you are not in the lender risk / credit risk category.

Flexible occupancy period: The loan term for these loans is usually 12 to 60 months. Choose your repayment term wisely, so you don’t default on the loan or pay too much interest.

Minimum documentation: Existing clients do not need to provide documents for a pre-approved loan, as the lender would already have their KYC (know your client) and other details in their database.

Paperless loan application: Customers could apply for a loan through the bank’s website or mobile app by filling out and submitting an online form.

Fast processing time: If your papers are in order and all the information matches, your loan could be processed in no time. Pre-approved loans are usually approved, processed and disbursed on the same day or within a very short timeframe, if the verification process is successful. You can use the loan amount for your personal use.

Negotiating skills: In pre-approved loans, clients are often able to negotiate the terms of the loan with the bank manager or relationship manager. This happens because more often than not, for such loans, the bank approaches the customers with the loan offer.

Discounts: To lure you into pre-approved loans, lenders sometimes offer benefits such as waived processing fees and a lower interest rate. If you take advantage of it, your total debt could go down to some extent.

Beware of pre-approved bogus loan offers

Pre-approved loan offers are usually available from the same lender you loaned from before. Genuine lenders will not give pre-approved loans without reviewing the customer’s credit history.

“You need to verify official documents (like the letter of offer) with the lender’s website to ensure authenticity. Also pay attention to small details such as the description of the lender, logos, links to websites, misspellings, etc. You should look for any signs of counterfeiting in the documents. Genuine leaders will not charge any legal fees or ask for sensitive information like OTP, card details, personal information, etc. Kumar adds.

Remember that every call you get with a loan offer might not be genuine.