Pre-approved loans: Why banks offer them and what to check before accepting

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If you get regular SMS or app notifications offering you a ₹3 lakh or ₹5 lakh loan “instantly”, it’s not because the bank loves you. It’s because they already know a lot about you.

Your salary credits, average balance, past EMIs, credit card payments and even old fixed deposits are constantly being profiled. Based on this data and your credit score, the bank quietly decides how much you can borrow, what interest rate to offer and how likely you are to repay on time.

Once this internal risk check is done, the bank can disburse a personal loan with almost no extra paperwork. For them, it is the easiest kind of business: high-yield, unsecured lending to people who look “safe” on paper.

They don’t have to pay agents, chase documents or spend weeks on processing. One push notification can convert into a profitable loan. That’s why you’ll see these offers pop up again and again in your net banking, UPI app or credit card portal.

From your side, the appeal is obvious. No branch visits, no salary slips, no CA, no awkward conversations. You press a few buttons and the money lands in your account in minutes or hours.

When you are facing something urgent — a medical expense, school fees, a car repair, moving houses — the promise of “instant” money feels like a lifeline. Even for non-urgent spends like a holiday or a big gadget, the psychology is similar. The loan is right there, pre-packaged, and it feels easier than hunting for other options.

There is also a subtle ego boost. Being “pre-approved” signals that you are a good customer, with a clean repayment record. People sometimes treat it almost like a reward, not a product being sold to them.

This is where a lot of people go wrong. A pre-approved offer is not automatically the cheapest loan you can get. In fact, very often it is not.

Banks are charging you partly for convenience. They know most people will not bother to compare rates when money is literally a tap away. Another bank may be willing to offer you a lower rate based on the same credit profile, especially if you’re willing to do a proper application and share documents.

Even a small difference in interest adds up. On a Rs 3 lakh loan for three years, a two-percentage-point higher rate can mean tens of thousands extra over the full tenure. You only see the EMI, but the total cost quietly creeps up.

So before accepting, do a quick check on what rate the same bank offers if you apply normally and what other large lenders are quoting for a personal loan of similar amount and tenure If your pre-approved rate is clearly higher, you’re paying a “lazy tax” for not shopping around.

Because the journey is so slick and quick, many people skip reading the fine print. That’s where the extra costs hide.

You may be charged a processing fee even for a pre-approved loan. Some banks bundle in credit shield insurance, which protects your loan in case of death or disability but also increases your total cost. In some app journeys this box is pre-ticked and you have to manually remove it.

Prepayment and foreclosure terms also matter. If you get a bonus or windfall and want to close the loan early, a two to five per cent penalty on the outstanding amount can wipe out any saving from early repayment. On “instant” loans, banks are often stricter about allowing part-prepayments in the first few months.

A pre-approved loan may be unsecured, but it is very visible in your credit report. Once you take it, the EMI becomes a fixed monthly obligation.

If your income is stable and your EMI-to-income ratio stays reasonable, this may not be a problem. But if you are already paying a home loan, car loan and credit card dues, one more EMI can push your monthly budget over the edge. A couple of delayed payments due to cash-flow stress can damage your credit score and make future borrowing more expensive.

Taking a big personal loan just before applying for a home loan can also reduce your housing loan eligibility. Lenders look at your total obligations, not just one loan in isolation.

There is another side-effect people don’t always expect: some banks quietly reduce your credit card limit after disbursing a sizeable personal loan, just to manage their risk. That can affect your spending flexibility or emergency back-up.

Despite all the caveats, pre-approved loans are not evil by default. They can be useful in a few situations.

If the expense is real and unavoidable, the rate is competitive, and you have already checked that your EMI fits comfortably into your monthly cash flow, using a pre-approved offer can save time and paperwork. It may also be better than revolving a large balance on your credit card at very high interest.

They can also make sense when you had anyway planned to take a personal loan, compared offers, and found that your bank’s pre-approved deal is as good as or better than others. In that case, the speed is a genuine plus.

But using them for impulse spends — a spontaneous vacation, a new phone because you’re bored of the old one, lifestyle upgrades — is where people usually get trapped. The excitement of instant money fades quickly; the EMI does not.

The safest way to look at these messages is simple: treat them as marketing, not as financial advice. Just because a bank is ready to lend does not mean you need to borrow. Pause, calculate the total cost, check alternatives, and ask yourself if the purchase can wait. If the answer is “yes, this still makes sense even after comparison,” go ahead. If you feel even slightly unsure, it’s usually smarter to swipe away the notification and move on with your day.