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What is a Personal Loan Sanction Letter? Why is it Important?

 How do you know your lender has approved your personal loan application? It’s the issuance of a sanction letter by the lender that is issued upon meeting all the eligibility criteria and submitting all the related documents.

A sanction letter is one of the most important documents in any loan approval process. It includes all the details of the personal loan and the terms on which the loan is sanctioned. Issuance of the sanction letter is the first step toward disbursal of the personal loan amount to the borrower’s bank account.

What is a Personal Loan Sanction Letter?

A personal loan sanction letter acts as a letter of approval by the lender to the person who has applied for the loan. Through this letter, the applicant is informed of the loan amount approved, loan tenor, personal loan interest rate, processing fee, and EMI amount.

A sanction letter is not the final loan agreement document. The borrower has to provide all the relevant documents to the lender and upon successful verification and loan agreement execution, the lender agrees to advance the loan process and disburse the loan amount.

Steps to Issue the Sanction Letter by the Lender

Upon receiving the personal loan application, the lender conducts the following checks on the borrower profile to issue a sanction letter:

  • Applicant’s credit score and credit history
  • Applicant’s debt-to-income ratio or ability to repay the loan
  • Applicant’s employment and income status
  • Applicant’s sources of income
  • Outstanding debt, if any
  • Whether the documents submitted are genuine or not

If the lender is satisfied with the above information provided, the borrower is issued the sanction letter. To increase the chances of getting a personal loan sanction letter, use the personal loan eligibility checker to know your eligibility for availing of the personal loan. Based on the results, you can work on the factors to improve your personal loan eligibility.

Also, you can use the personal loan calculator, which helps you to calculate the EMI for different loan tenures. Always go for EMI that can be easily afforded by you without impacting your finances. You can repay the personal loan amount in a tenure ranging between 12 to 60 months.

Importance of Sanction Letter

The following are the importance of a personal loan sanction letter:

  • Its a letter of acceptance, which has validity
  • A sanction letter by the lender is important to get a loan
  • It allows further processing of the loan application
  • Based on the terms mentioned in the sanction letter, you can decide if you want to go ahead with the loan. 
  • Based on the sanction letter, you can also negotiate with other lenders for lower interest rates and easier terms

What is Included in a Sanction Letter?

The format of the personal loan sanction letter differs for each lender, but the details included in it remain the same. A sanction letter will include:

  • Personal loan application number
  • Mention of the loan category under which loan is offered
  • Your residential address
  • Sanctioned loan amount
  • Accepted loan tenure
  • Rate of interest 
  • Base rate at which interest is calculated
  • Interest type (fixed/floating)
  • Applicable EMI
  • Processing fee

The lender will also include the terms and conditions for availing of the personal loan. For example, the validity of the sanction letter, situations under which the sanction letter can be revoked, and the details for the processing of the loan application.

What is the Validity of the Sanction Letter?

Generally, the validity of the sanction letter is six months. The borrower has to avail of the loan facility within that period. In case, the term of the sanction letter expires or is revoked, the borrower has to make a fresh loan application and fulfill all the personal loan requirements demanded by the lender. 

What are the Documents Needed for a Sanction Letter?

The following are the personal loan documents required to issue a sanction letter:

  • A filled-in personal loan application
  • Identity proof (KYC documents)
  • Residential address proof
  • Bank account statement for the last six months
  • Salary slips for the last three months
  • Income tax returns or Form 16

For self-employed professionals, they need to provide documents related to proof of their business, business financials of the last two years audited by a CA, and income tax returns for the last two years.

Bottom Line

A sanction letter is an important piece of document, but not the final letter of approval and doesn’t legally approve the loan. You need to undergo additional levels of verification and other background checks before the final loan agreement is drafted.

Once you receive the sanction letter, go through the details of the letter including terms and conditions and take steps as required for the next stage of approval.

If there is an error in the sanction letter, you should bring it to the notice of your lender immediately before the next stage of approval begins.




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