The idea of getting your home loan approved before you’ve finalized the estate sounds good. Isn’t it!! But does it carry the secure consequences?

Pre-Approved loans are basically loans offered by banks before the borrower decides on the property, on the bases of clean track record of loan payment history or regular salary of the borrower. Bank judges the eligibility on the basis of various accounts you may be holding with them or individually. For example, if you have a salary account with the bank, it makes them familiarize with salary drawn, the liquidity in your account. Also loans and credit card gives insight of your finances to banks. In reality the requirements of per-approved loan are quite similar to the regular loan. Pre-approved loans need verification of all the relevant documents. If you have an existing account in the bank, it makes this procedure easier. For Secured loans, banks would do a check as required on the property, asset etc.  And will sanction and disburse the loan if it’s as per the per-determined criteria. The biggest highlight of the pre-approved loan is lower interest rate, however the banks do charge pre-approval loan processing fee which is non-refundable and quite high.

The pre-approved loans may sold at lower interest rate, but it bank do charge pre-approval loan processing fee which is non-refundable.

So to evaluate whether Pre-approved is a good option or not. We have scrutinized the pros and the cons of the pre-approved loan.

Pros of Pre-approved Loan

Quicker loan processing: A pre-approved loan does make the process faster. With bank already having details about your finances, the time taken to process the loan is generally lesser.

Bargain with seller: With pre-approved loan, you already have ready funds which help to you negotiate a good deal with the seller. It reduces the risk of missing the important deals due to lack of ready funds.

Cons of Pre-approved Loan

Not guaranteed: A pre-approved loan is not guaranteed. Banks have the final prudence on whether or not to disburse the approved amount. For example, the bank doesn’t lend for the property in that particular area for which you have applied pre-approved loan. The bank has rights to reject such applications.

Interest Rate: A pre-approved loan may be sold at lower interest rate, but is always at floating rate. If you wish to take a loan at fixed rate of interest, pre-approved loan isn’t for you.

Condition subject to change: Although banks claim to approve the loan, the interest rate and other important conditions are still at indicative. Mostly at the time to pre-approval, bank work out on few terms & conditions with “subject to change clause”.

Non-refundable & fixed time frame:  The costs drawn in in a pre-approved loan are never refundable. The processing fee involved is imposed irrespective of the loan sanctioned or not. Also pre-approved loans are valid only for a certain period of time. So if have been offered, you needed to shortlist you asset (property etc) at the earliest.

Gap between loan required & loan offered: Once you have chosen the asset (property etc), the loan requirement might be higher compared to loan sanctioned. Requesting for higher loan amount from bank involve more tedious task and documents.

Pre-approved loans may have few drawbacks, but if you want to buy a property with less hassle and want to save some time. Pre approved loans can help you. But ensure your doubts before approaching banks for a pre-approved loan.