Highlights:
- A loan sanction letter ensures the bank's sanction and lays down the key terms regarding the loan amount, interest rate, and tenure, to name a few.
- The sanction letter is basically a letter from the bank that you have to accept; it is not a disbursement.
- Having complete and clear knowledge of each of the clauses in the loan letter will help eliminate surprises and facilitate a smooth release of the funds.
Have you ever applied for a personal loan or home loan, waited for days, and then finally received an official email or courier with multiple pages titled “sanction letter”? That moment you realize that your loan has been approved. But what exactly does that letter mean?
In this blog, we provide a detailed explanation of a loan sanction letter, what it contains, how it works, and why it must be understood by a borrower before giving their acceptance to it and before signing.
What Is a Loan Sanction Letter?
A loan sanction letter would basically be a formal letter of approval granted by banks or any other financial institution. So once the bank has considered your loan application and sanctioned it, keeping the eligibility, credit score, documents submitted, etc., into consideration, a sanction letter is issued to you.
The sanctioning of the loan, however, does not mean the money is lying in your account; it is just that the lender agrees to lend a certain amount under well-defined terms and conditions. The lender begins the process of disbursement only after you have accepted the terms and conditions and completed the required documentation process.
What Does a Loan Sanction Letter Contain?
A sanction letter is indeed not a mere formality. It lays out your comprehensive loan picture. Here is what a typical bank-sanctioned loan letter contains:
- Loan Amount Approved: States the actual amount of money the bank agrees to lend you.
- Interest Rate: Whether it’s fixed or floating, along with the exact percentage.
- Repayment Tenure: Give the number of months or years for which you will repay the loan.
- EMI Schedule: Mention the EMI amount on a monthly basis, along with its due date, every month.
- Processing Fees: The fees you are liable to pay before or at the time of disbursement.
- Prepayment Terms: Whether prepayment without any penalty is allowed or not.
- Validity of the Offer: Usually from 30 to 90 days.
- Disbursement Conditions: Do additional documents or actions need to be completed before the money is actually transferred?
These details make the loan sanction letter an important document, and it needs to be perused line by line.
Loan Sanction vs Loan Disbursement
Loan sanction and loan disbursement are terms that commonly create confusion among many people. While they are equally important, they characterize different stages of loan processing.
- Loan Sanction Letter: Confirmation of approval of your loan with conditions.
- Loan Disbursement: Transfer of funds to your bank account following the fulfillment of conditions.
Disbursement by bank shall occur only upon the borrower's entering into the loan with acceptance of the terms and conditions mentioned in the loan letter and the submission of documents required by the bank.
Why a Loan Sanction Letter Is Important?
- Transparency: You will see the fees, charges, and conditions in advance, which helps you to plan your finances better.
- Legal Record: You can refer to legally valid documents in case there are any future disputes.
- Decision-Making Tool: You can compare terms of sanction with other lenders before accepting.
- Planning Help: It helps you to plan your finances as you know your EMI, tenure, and interest in advance.
Understanding each section of the loan sanction letter helps save you from hidden charges later or confusion.
Common Conditions Before Loan Disbursement
Even after receiving the loan sanction, most lenders won’t disburse the amount unless you meet certain requirements, such as:
- Signed loan agreement
- Post-dated cheques or ECS form
- Latest salary slips or income proof
- Property documents (for secured loans)
- Insurance for the asset or self
Fulfilling these quickly ensures your funds reach you faster.
What to Check Before Signing Loan Sanction Letter?
Before you sign your sanction letter, always check:
- Is the loan amount what you requested?
- Are the interest rate and EMI affordable and as discussed?
- Are the processing or hidden charges reasonable?
- Can you prepay or close the loan early without penalty?
- Have all verbal agreements with the lender been put in writing?
Once you sign and accept the loan letter, you're legally bound by the conditions. So, take your time and understand everything.
Final Thoughts,
A loan sanction letter might look like mere paperwork, but there is more to it. Here is your opportunity to understand what you are agreeing upon, what you will pay on a monthly basis, for how long you will have to pay, and any charges that may be applicable. Take it seriously, and do not hesitate to get in touch with the lender if there is something you don't understand. Always compare a loan sanction letter with any other possible offers from other lenders. This empowers you to negotiate and pick the cheapest loan.
Trending loan apps like Viva Money have simplified it with digital verification, minimal paperwork, and faster approvals. On the go, you can choose to view your approval terms in-app, keep track of your loan sanction, and get your disbursement, all while sitting at home.
FAQs
1. What is a loan sanction letter?
It’s an official letter from the lender saying your loan is approved with certain terms.
2. Does a sanction letter mean the money is in my account?
No, it means approval only. The funds are sent after you accept and complete all formalities.
3. What details are mentioned in a loan sanction letter?
Loan amount, interest rate, tenure, EMI, fees, and special terms are all listed.
4. What’s the difference between sanction and disbursement?
Sanction is approval; disbursement is when the money is actually transferred.
5. How long is a loan sanction letter valid?
Usually 30 to 90 days, depending on the lender’s terms.
