“Pre-Approved Loan” is a term every individual looking for a loan would have come across. A pre-approved loan is a loan approval provided by the bank without actually applying for it. Loan approval is a crucial part of the loan processing and it can have an impact on the credit report irrespective of the approval or rejection. But getting a loan pre-approved will work in a different way where it doesn’t hurt your credit report if rejected but makes you learn if you are eligible for a loan.
Working of Pre-Approved Loan
The working of a pre-approved loan is simple. Banks or financial institutions usually partner with the Al Etihad Credit Bureau to get the borrower’s credit profile based on which a loan is approved. So when the lender requests the credit bureau for profile review for a new loan, this is added to the credit report with the date and the status that is rejected or approved. Rejected status in the credit report might have a bad reputation on the borrower’s credit profile affecting future loan applications as well unless any existing loans or bills are cleared that would eventually help in increasing the credit score.
When a loan applicant requests a pre-approval, the lender performs a soft enquiry at the credit bureau and checks if the borrower is eligible for a loan. They also provide additional details like the maximum loan amount the borrower can borrow.
Getting a Pre-Approved Loan Invitation from Lender
There can be times where the lender offers you a loan by themselves. If a bank or financial institution finds a customer’s credit profile good with a solid credit history, high debt to burden ratio (DBR), they offer a pre-approval loan.
Though it is tempting when the bank or financial institution itself is offering a loan that involves less documentation and quick processing time, the borrower must check and analyse does he really needs that loan. Accepting a loan when there is no requirement can land you in a bad debt pit if you don’t repay it on time.
How to get a loan pre-approved?
In order to get your loan pre-approved, ensure you meet the basic eligibility criteria of the bank like minimum salary, good credit score, DBR above 50% with the right set of documents.
Once you meet the eligibility criteria, you can visit the bank and request a pre-approval.
If the pre-approval is positive, you can proceed with a regular loan application according to the bank’s guidance.
Advantages of a Pre-Approved Loan
- Getting a loan pre-approved will not have a negative effect on the credit report.
- Pre-approval is very common in the case of home loans. The loan applicant gets pre-approved and starts looking for a property according to the approved amount.
- If a financial institution or banks provide pre-approval, then the documentation will be minimal, competitive interest rates and quick processing.
Points to be aware of a Pre-approved loan
- In the case of a pre-approved mortgage loan, the loan amount is not fixed. It can vary with the regular loan amount when applied.
- The pre-approved loan is valid only for a certain period of time which depends on the lender.
- Check the terms and conditions of the loan before accepting it.
- Once pre-approved loan can be rejected at the time of final loan approval. So the pre-approval loan is not guaranteed.
- As already mentioned, if the lender is offering you pre-approval, check whether you really need the loan.
A pre-approved loan is a way to find whether the borrower is eligible for a loan or not without disturbing the credit report. Note that a pre-approval is not guaranteed final approval. Also, ensure you get the loan of the required amount only.
Frequently Asked Questions
A. There is no particular income requirement for a pre-approval of a loan. The minimum income is the same as the income required on that particular loan you are looking for.
A. The documents required for a pre-approved loan is similar to a regular loan,
– Emirates ID
– Residence Visa
– Salary Certificate
– Salary Transfer Letter (If required)
– 3-6 months bank statements
A. Once you get your loan pre-approved, you can check if you need the loan and visit the bank to apply for it stating your pre-approval status.
A. There are chances of your final loan application getting rejected even if you were pre-approved once. The reasons can be different like change in income, bank’s terms & conditions, your credit score drop, etc.
A. If your pre-approval got rejected, you can find out the reasons behind the rejection like low income, bad credit report, etc. and try to fix them before applying for a new loan.
A. No. Pre-approval is just an invitation by the bank. It has no impact on your credit report or score.