Personal loans vs pre-approved personal loans

Taking a personal loan is a common way for individuals to finance major expenses or manage cash flow shortfalls. While traditional personal loans require going through an application and approval process, pre-approved personal loans or line of credit loans offer funds more quickly and easily to select borrowers. This article looks at key aspects of line of credit vs personal loan options to understand the pros and cons of each.

Understanding personal loans
 

A personal loan is an unsecured loan given by a bank or financial institution to an individual. The funds can be used for any personal purpose like consolidating debt, renovations, weddings, medical needs, education or even a vacation. Personal loans are repaid through equated monthly instalments (EMIs) over a tenure of 1-5 years generally. The borrower does not have to provide any collateral or security.

To get a personal loan, one must meet the lender's eligibility criteria related to income, credit score, employment stability etc. One has to submit documents, fill application forms, and go through credit checks and approval processes. Interest rates offered depend on creditworthiness. Processing fees may also apply. Options to choose loan amount and tenure are usually available.

Understanding pre-approved personal loans
 

Pre-approved personal loans, also called pre-qualified loans, are loan offers made proactively by lenders to select customers. They identify borrowers based on criteria like account history, credit score, income stability, and relationship with the lender. Those who qualify get offers via email, SMS, or app without having applied for a loan.

Accepting a pre-approved offer involves minimal documentation or credit checks as evaluation is already done. Disbursal can happen within hours or days. This makes them extremely quick and convenient to obtain funds compared to regular loans. Eligible loan amounts and terms are pre-set based on profile. Interest rates are competitive for strong credit scores.

IDFC FIRST Bank offers pre-approved personal loans to select customers based on their creditworthiness. Salaried and self-employed individuals aged 21-60 years with a CIBIL score of 730+ can get approved for the bank's FIRSTmoney smart personal loan. This online personal loan provides an instant loan offer of up to Rs 10 lakhs. Key benefits include zero foreclosure charges, flexible repayment tenures, and swift disbursal within 24 hours. Customers only need to complete video KYC to apply digitally. FIRSTmoney offers financial flexibility and convenience to customers with excellent credit.

Pre-approved personal loan benefits
 

• Instant loan disbursals - Near instant disbursal once an offer is accepted, due to minimal processes. Helpful in emergencies.
• Convenience – There are no lengthy application processes required. A loan is available at the click of a button.
• Certainty - Loan amount, tenure, and rate are known upfront.
• Competitive rates - Offered to low risk customers with a good credit profile. 
• No credit check - No impact on credit score due to loan application.

However, pre-approved loans also come with some limitations.

• Limited flexibility - loan amount and terms are pre-set. One has to accept whatever is offered.
• Relationship driven - Offered only to select existing account holders of a bank or lender.
• Sudden withdrawal - lender may withdraw pre-approved offer at any time without notice.
• Overspending risk - Easy availability can tempt over-borrowing.

Conclusion
 

Personal loans help meet various financial needs but require going through full credit process. For select customers, pre-approved personal loans offered by banks and NBFCs provide the benefit of quick, convenient access to funds due to minimal documentation and credit checks. However, they come with restrictions on loan terms and limited flexibility. Comparing rates, charges, and eligibility across lenders can help identify the most suitable option based on one's specific requirements and repayment capability. Being prudent and responsible while borrowing is key, regardless of whether you take a regular loan or a pre-approved one.