Often an unknown telephone number flashes on your cellphone and the person on the other side identifies herself as an agent from a bank. She offers a pre-approved loan, which means that the bank has already sanctioned a loan which can be availed by doing minimal paperwork. These loans are of various types—home, car or personal. For home loans, a sanction letter stating that an in-principle approval has been granted for a particular home loan amount is offered.
There are, however, various conditions attached to these loans.
The advantage of a pre-approved loan is that you know the amount a bank is ready to lend. So, you can look for a property or a vehicle accordingly. However, this loan can only be availed within a certain time frame. These offers are usually valid for six months but may vary from bank to bank.
The rate of interest offered initially is usually valid for a month. However, the bank may change the rate depending on the prevailing market rate after completion of a month. This change, too, varies from bank to bank.
The amount of loan approved depends on factors such as average balance in your savings account and the time duration for which you have been a customer of the bank. Since the bank has your details, it would mean less paperwork for you. It will also check your credit report and credit score to decide on the amount of loan. Processing of application is usually fast.
Since these loans are pre-approved, most banks charge a processing fee but refund the same once the loan is availed. Some banks may charge a flat service fee of few thousand rupees for pre-approved sanction letter on home loans.
Advantages of such loans
Apart from minimal paperwork and faster processing, you can get a slightly better deal in terms of interest rates. However, that may not always be true and so it’s best to check with other lenders before opting for such loans. If you have a pre-approved home loan sanction letter, you are in a better position to negotiate with builders as you are ready to book a property immediately. Also, remember that banks will disburse the loan only if the property meets the approval criteria.