Is a pre-approved home loan a good option?

How about the idea of getting a home loan approved even before you have finalised the property? But is this free of all hassles? Are there any reasons for not opting for one?

Imagine yourself wanting to buy your dream home. You zero in the property and apply for a home loan. Now, what happens if the property you choose for yourself gets sold off to someone else by the time your loan gets approved? Or, what if your loan application gets rejected? This is where pre-approved loan comes into picture.
Often you would have got calls from banks, trying to convince you to take a pre-approved loan with lower rate of interest, minimum documentation and faster processing, typically ones like 48 hours.
A pre-approved loan is essentially an in-principle approval given to you by a bank/financing institution on basis of your profile. The factors that the bank looks at when judging your EMI (equated monthly instalment) paying capacity include your income status, the current EMI outflow, your payback history and your net-worth. The bank then approves of a certain amount that you can avail as home loan, within a certain time period, usually six months.
Although it sounds great to have a loan approval letter on your palm even before you finalise the property you wish to buy, there are glitches you need to look out for-there are matters you really need to give a thought to before deciding whether to avail it or not.
A pre-approved loan is not guaranteed. Banks have the final discretion on whether or not to disburse the approved amount. For example, you select a property of your choice and the bank does not lend for properties of that area your house falls in, the bank has all the right to reject the final application on that basis.
Although the bank claims to have ‘approved’ the loan, the interest rates and other important terms and conditions are still at sea—they are ‘indicative’. You won’t know how much you require paying back and within what time frame. Some banks do work out a few terms and conditions at the time of pre-approval, but with a “subject to change at discretion of the bank” clause. Besides that, all documents related to loans need to be submitted again at the time of disbursal, without which banks have been known to reject the pre-approved loan. This effectively leads to an additional documentation burden on you.
A fact that you require to take into consideration is the amount that has been pre-approved versus the amount you actually require once you chose the property. If the final amount is higher, you require making a higher down payment since you have a limited chance to negotiate with the bank now-your budget could go haywire. 
Another factor you require to keep in mind is the type and amount of indicative interest rates mentioned on the letter. These rates are usually floating. In case you wish to take a loan at fixed rate of interest, pre-approved loan isn’t for you.
The costs involved in a pre-approved loan are never refundable. The processing fee involved is levied irrespective of whether you finally avail the loan or not. Loans are valid for a specific time frame—if you do not put up the ‘disbursal’ application within that specific period, the pre-approval gets null and void and you require to apply all over again the next time, and the fee involved will be levied again.
Last but not the least; your credit gets blocked to the extent of amount you have taken the pre-approval for. If during the period that your pre-approved loan is valid for, you require a personal or an education loan, your payback capacity will be calculated taking into consideration the pre-approved loan. In addition to that, if you have put up a pre-approval application numerous times, you get tagged as someone constantly looking out for credit, and that reduces your credit score.
You should go in for a pre-approved loan only once you have shortlisted the property of your choice. A pre-approved loan does make the process faster. Another added advantage if that you can negotiate with your builder on the basis of funds you already have in your pocket, the builder may bring down prices for you, who has ready cash to pay instead of someone who still has to raise it. 
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    Only 20% consumers know about consumer protection law says study

    Just 42% consumers across the country have heard about their rights and almost 50% of consumers are not even aware about government's 'Jago Grahak Jago' campaign

    New Delhi: Only 20% of consumers in India are aware of the consumer protection law and just 42% of them have heard about consumer rights, reports PTI quoting a study.
    "Only about 20% of consumers in the country are aware of the Act even after 25 years of its existence. It is the best known act followed by Weights and Measures Act, 1976 and Food Safety and Standards Act, 2006," said a study jointly conducted by CUTS International, an NGO and Food and Consumer Affairs Ministry.
    The government has enacted the Consumer Protection law way back in 1986 to protect consumer interest and settle disputes at the central, state and district levels.
    Only about 14% consumers are aware about the proposed Food Security Act. The awareness is the highest in northern region and the lowest in eastern region, it said.
    Just 42% have heard about consumer rights and almost 50% of consumers are not even aware about government's 'Jago Grahak Jago' campaign, the study said.
    However, these findings are still encouraging considering the fact that five years ago only 18% were aware about the Act, the study said expressing concern that people are gradually losing trust on consumer redressal mechanisms.
    Releasing the report, Food and Consumer Affairs Minister KV Thomas said, "We proclaim consumer is king. Unfortunately, larger section of society does not know about their rights."
    Even if educated consumers take their complaints to dealers or shop owners, they are asked to go to makers of the products, he said.
    Sharing his personal experience as a consumer, the minister said: "I purchased a car recently. But the car that was delivered to my place had scratches. When the dealer was asked to replace it, he asked my assistant to go directly to the manufacturer. Later, he realised that I am a minister and replaced the car. Not everybody can be a minister."
    Since justice is delayed in consumer courts, Thomas suggested that organisations like CUTS should play an important role in addressing the consumer grievances faster.
    "The success of consumer movement will depend on consumer awareness," he added.
    The study, conducted in 19 states and three union territories with a sample size of 11,499, was undertaken in the backdrop of the completion of 25% of the Consumer Protection Act.
    Although consumers have right to rederessal, the study revealed that nearly 93% of respondents have never made a 'formal complaint', while only 3% have registered their grievances with the company or producer.
    On quality issue of consumer products, the study said that "even in modern India, nearly 40% of consumers do not refer to any safety or quality certification such as ISI, ISO, Agmark, Codex before making a purchase.
    Although safety has been dealt in at least 25 different Indian Acts, what is lacking is periodic monitoring mechanism to ensure that the rules are being implemented to minimise risk, it said.
    Stating that the choices available to consumers across the availability of goods and services have multiplied ever since the reforms of early 1990s, the survey showed, "Only 1.6% of respondents were able to correctly name at least one product or service that has only one or two producers or providers."
    Poor implementation of government policies and laws is another impediment to the right to choice, it added.
    The study suggested steps for massive awareness campaigns and information dissemination among the consumers about the existing legal remedies available to them.
    It also recommended further strengthening of existing grievances redressal mechanism among others.
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    RBI sets up panel to speed up financial inclusion

    The 11-member panel is expected to explore issues like developing viable and sustainable banking services delivery models and developing products and processes for rural as well as urban consumers outside the banking network

    Mumbai: Amid slow progress in bringing the entire population under banking network, the Reserve Bank of India (RBI) has announced setting up of a high level committee to 'spearhead' efforts to ensure accessible financial services in the country, reports PTI.
    The Financial Inclusion Advisory Committee (FIAC) under RBI Deputy Governor KC Chakrabarty is expected to suggest appropriate regulatory framework to ensure that financial inclusion and financial stability move in tandem, the RBI said in a statement.
    Stating there has been significant, 'albeit slow', progress towards greater financial Inclusion, the RBI said ensuring accessible and affordable financial services in all the six lakh villages is a 'herculean task' and given the enormity of the task, "a lot of ground still needs to be covered".
    "This calls for a partnership of all the stakeholders," it said. The stakeholders include, RBI, SEBI, IRDA, PFRDA, NABARD, governments, civil society and NGOs, among others, the central bank said.
    As per 2011 census, about 58.7% households had reported availing of banking facilities. Out of the 24.69 crore households, 14.48 crore reported availing banking services. Nearly 10 crore households were not availing the services.
    The 11-member panel is expected to explore issues such as developing viable and sustainable banking services delivery models and developing products and processes for rural as well as urban consumers outside the banking network, the RBI said.
    The regulators and the central government are already part of the Technical Group on Financial Inclusion and Financial Literacy and Sub-committee of Financial Stability and Development Council.
    The apex bank said a need was felt to engage the members from the civil society, Non-Governmental Organisations and others for a sound and purposeful collaboration.
    The Committee, if necessary, would call other market players like technology vendors and corporate business correspondents as special invitees to the meetings.
    "Since the financial inclusion model selected in India is primarily bank-led, the Financial Inclusion Advisory Committee may also invite the Chairperson/Managing Directors of banks to each of its meetings to gather the perspective of the banks," it added.
    The members include, YH Malegam, Dipankar Gupta, Ela Ramesh Bhatt and DK Mittal (Banking Secretary) besides Members of the Central Board of Directors of RBI.
    Nachiket Mor, MS Sriram, RS Sharma, B Sambamurthy, Rama Vedashree, PDK Rao and KR Kamath, are the other members.
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