Your financial needs do not always materialize as planned, and you might run out of money when you least expect it. In the past, such circumstances required the borrower to visit the moneylender, but now personal loans can cover all your financial needs. Whether you need funds to travel or arrange cash for a medical emergency, you can obtain a personal loan instantly.

Although, personal loans from banks are subject to critical steps of customer verification that determine the result of your loan application. One essential document that will move you one step closer to obtaining a personal loan is a personal loan letter, also known as apersonal loan sanction letter, which is a green light confirming your loan approval.

Through this article, you will better understand the whole process of personal loan sanction, its letter format, and what a sanction letter is.

What is a sanction letter?

Once the lender has reviewed your application and determined you are qualified for a personal loan, lenders will provide a sanction letter for the personal loan. The document includes all the details about a personal loan and the conditions for its approval. This is what a sanction letter is.

What is a personal loan sanction letter?

A personal loan sanction letter indicates that your personal loan request has been approved. The details provided in a letter of loan sanctionare the total loan amount, interest rate, and monthly payment amount.

It is necessary to submit additional documents and sign the loan agreement before the loan amount is released. A lender will only agree to transfer the loan amount to the borrower’s account following a successful document verification.

It would be best if you remembered to submit all these documents before the sanction letter’s validity expires.

Details lenders look for while approving or rejecting a personal loan letter.

  • Your credit score – the higher your credit score, the higher the chances of your sanction getting approval.
  • Your credit history – at it’s an unsecured loan, lenders check to ensure that the applicant has a clean loan repayment record.
  • Your income and employment status – to ensure that the applicant has a stable source of income.
  • Your KYC details – to ensure that the documents submitted are genuine.

If you work for a delisted company, have a bad credit history and score, don’t have a reliable source of income, have applied for multiple loans at once, or have a debt-to-income ratio of more than 40%, your loan application may be denied.

Importance of sanction letter for a personal loan

Important loan repayment terms, such as processing fees and late payment penalties, are included in a sanction letter. A lender’s approval letter is required to obtain a loan, enabling the application of loan sanction to be processed further. You can choose to proceed based on the conditions outlined in the sanction letter.

You can use a personal loan letter to determine whether you want to proceed or change your mind based on your financial circumstances. Additionally, the letter serves as evidence if a legal dispute arises between the borrower and lender in the future regarding a breach of the loan agreement.

Components that make up a personal loan sanction letter format

To make sure you comprehend all the details in this document clearly, you must be familiar with the personal loan sanction letter format. Thepersonal loan sanction letter format may differ from lender to lender, but some details remain constant. A letter of loan sanction can contain the following information:

  • Sanctioned loan amount
  • Interest rate (fixed, hybrid, or variable)
  • The applicable rate of interest
  • Loan tenure
  • Applicable EMI
  • Processing fee
  • Last income tax return form
  • Validity of the sanction letter
  • Terms and conditions

A sanction letter typically has a six-month validity period. When you fail to use it within the allotted time, your application for loan sanction is revoked, and you must reapply for the loan to prove your eligibility again.

Documents required for a loan sanction letter

  • A copy of your Voter ID / Passport / Driving License / Aadhaar Card
  • A copy of your Bank statements for the last six months
  • A copy of your Salary Slips for the last three months
  • A copy of your Ration Card / Electricity Bill / Passport
  • A certificate stating one year of continuous employment

Additional criteria for salaried employees while filing an application for loan sanction is

  • Must earn at least Rs. 15,000 per month and
  • At least a year of professional experience.

How is a sanction letter different from a disbursement letter?

A sanction letter guarantees that the loan has been approved, whereas a loan disbursement is when the loan amount arrives from a bank account following valid verifications.

Even if your financial institution approves the loan, you must still go through additional formalities before receiving the disbursal loan amount. Usually, the money is paid out after receiving the sanction letter, which can take anywhere from 24 hours to two working days. However, the time it takes for a personal loan to disburse can differ from one lender to another.

In most cases, the lender will mail you the check, or you can request a draft for the loan amount. However, many lenders now offer direct bank transfers using NEFT to transfer the money directly to your account.

Final thoughts

Before borrowing a loan, it’s crucial to understand every aspect of it. Educating yourself on the basics and essentials of a sanction letter will give you a better understanding of how it works. When you receive the sanction letter, be sure to read the terms and conditions thoroughly and make the best decision from there.

The application process for personal loans has become easier with Tata Capital.  With Tata Capital, you can find personal loans tailored to your needs, whether you are planning a world tour or need to extend your home. Although, to apply for a loan and repay it on time, you must provide proof of income and employment, along with adequate identification.

You can apply for personal loans in person or through a single touch from the convenience of your home. With us, you can apply for multipurpose personal loans with competitive interest rates for a convenient tenure of up to 6-years.

Head to our website to check your loan eligibility and apply!

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