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Watch your step on pre-approved loans

Customers of various banking products often get a lot of mail, which promises them several benefits. Arnav Pandya tells us more.

india Updated: Feb 22, 2008 23:35 IST

Customers of various banking products often get a lot of mail, which promises them several benefits. Some of them cover various loans that are offered to them in a manner that makes it easy to complete the loan process. One has to be alert about all these extra benefits being given because there are several financial implications that come along with such developments.

Pre-approved

The biggest benefit that is touted in the loan offerings is that the amount is pre-approved. It is shown as if the amount has already been given to the individual. The person to whom this is addressed has to understand that this is not some great benefit being given free but that there is a cost attached to the whole thing because there will be an interest to be paid. The process for getting the amount is not very long but this might not be the best route that a person can take for the purpose of getting a loan.

Interest rate

The interest rate is the most vital point in the whole transaction. And this is where the individual often ends up paying a heavy price. This is because the interest rate that is charged on the loan is quite high standing at over 20 per cent in quite a few cases. This will be seen to be higher than what people can manage under the various different routes through which they can normally get a loan. Often there is no need for a person to pay such a high amount of cost but still people use the loan because it is present to them and available easily.

Other charges

One also has to be aware of several other charges that will enter the fray when the loan is taken. Often there is a processing fee that comes into the picture. Similarly there might be some other charge and this has to be checked for individual cases. All this keeps on adding to the cost for the individual who is taking the loan or making use of the available money.

Final decision

On the whole the person taking the loan needs to have a clear picture of why they are looking at this area for the source of their funding. In most cases there might be other alternatives available where a little bit of work could end up lowering the cost for the individual.

This is crucial because an amount saved is an amount earned for the individual.