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

12 MAY, 2022

When it comes to financing, it is imperative to record everything. Verbal promises or approvals have no credibility before the law. Therefore, when you avail a loan, everything is documented. You need to submit all the required documents related to your income and identity, and the lender offers you a loan with a written agreement. Having proper documentation and paperwork helps remove ambiguity and confusion. Moreover, both parties have written records that can be preserved and retrieved whenever needed. One of the important documents of the personal loan process is a personal loan sanction letter. Here is a brief guide on what this personal loan sanction letter is and its importance.

What is a personal loan sanction letter?

It is a legal document that acts as written confirmation from the lender that your loan application has been approved. It acts like an approval letter that financial institutions provide to inform that you are entitled to a certain loan amount under specific terms and conditions. It contains all the information about the loan and the agreed terms offered by the lender. The lender verifies your credit history, repayment capacity, current income, documents submitted, source of income, outstanding debts, etc., before giving the sanction letter.

Content of the sanction letter

The sanction letter contains the following information:

• Sanction loan amount

You might not get the sanction for the same loan amount which you had applied for. The lender decides the loan amount based on your financial profile and credit score. The sanction letter contains the amount which you get the sanction for from the lender.

• Interest rate

While you can find the interest rate of the lender on their website, it is not necessary that you get the same interest rates. It could be higher depending on your profile. Your sanction letter contains your interest rate and the type of interest rate - whether fixed or floating. It could also contain details like the applicable interest rate and the base rate on which the rate is calculated.

• Tenure

It also contains the tenure over which you need to repay the loan.

• EMI

The sanction letter contains the Equated Monthly Instalment (EMI) amount you need to pay every month. Use the personal loan EMI calculator to check affordability. 

Importance of the sanction letter

• A sanction letter is an important step of the loan process. Without a sanction letter, the loan application is not processed further.
  
  
• A sanction letter is a legal document that can be used as proof that the loan amount has been sanctioned to you. The lender is under obligation to lend the amount to you at the agreed terms and conditions, interest rates, and tenure.

• The sanction letter usually has a validity of six months, during which you need to accept and return the letter to the lender.

The lender can keep the terms of the loan the same while preparing the agreement letter. Or they can ask for additional documents before disbursing the loan amount. Look out for the sanction letter while opting for an instant personal loan.