Personal Loan Sanction Letter: Content and Importance

Posted on Friday, July 26th, 2024 | By IndusInd Bank

Applying for a personal loan is more than just filling out a form and waiting for money to hit your account. Before the funds are disbursed, lenders issue a document called a personal loan sanction letter. While many borrowers overlook this step in the loan process, understanding what a sanction letter is—and why it matters—can save you from surprises later.

Let’s walk through everything you need to know about a personal loan sanction letter, its features, contents, and importance.

What is a Personal Loan Sanction Letter?

• A personal loan sanction letter is an official document a bank issues after it approves your loan application. 

• Receiving a loan sanction letter means the bank has reviewed your application. They have verified your details and will provide the sanctioned loan under the specified terms.

• Note that the loan sanction letter is not the final loan agreement. However, it is a major step towards disbursal. 

• It provides a clear understanding of the loan offer. With its help, you can review and accept the terms before the disbursal of the funds.

Features of Personal Loan Sanction Letter

• Provisional Approval: It is a conditional approval, not the final confirmation of disbursement.
• Time-Bound Validity: The sanction letter is valid for a limited period (usually 15–30 days).
• Non-Transferable: It is issued specifically to the applicant and cannot be used with other lenders.
• Customised Terms: The terms mentioned in the letter are tailored to the applicant’s profile—credit score, income, employer, etc.

Contents of a Personal Loan Sanction Letter

Here are the common contents you can expect to find in a personal loan sanction letter:

1.      Loan Amount

The letter specifies the loan amount the bank is willing to sanction based on your eligibility and creditworthiness.

2.      Interest Rate

It includes the interest rate applicable to the personal loan, which can be fixed or variable. Understanding this helps in calculating the overall cost of the loan.

3.      Repayment Tenure

The loan sanction letter outlines the repayment tenure too, which can range from a few months to several years.

4.      EMI Amount

The letter also includes the Equated Monthly Instalment (EMI) to give you a clear idea of your monthly obligations. 

If you want to get an estimate of the EMI before you receive the sanction letter, use the Personal Loan Calculator from IndusInd Bank. All you need to do is input the loan amount and the tenure to get an approximate EMI amount. 

5.      Processing Fees 

Any applicable processing fees, administrative charges, or other costs associated with the loan are detailed in the letter.

6.      Terms and Conditions

The letter includes various terms and conditions. This can include prepayment charges, penalties for late payments, and other relevant clauses.

7.      Validity Period

The personal loan sanction letterhas a limited validity. You must accept the loan offer and complete the formalities for disbursal within this time frame. 

Why is Personal Loan Sanction Letter Important?

The personal loan sanction letter is important for several reasons:

1.      Formal Approval

It serves as a formal confirmation of your loan application approval. It is an assurance that the bank is willing to provide the funds under specified terms.

2.      Clarity on Loan Terms

The letter provides clear and detailed information about the sanctioned loan. This can include theamount, interest rate, repayment tenure, and other terms.

Having a clear understanding of the loan terms allows you to compare offers from different lenders. You can negotiate better terms if necessary.

3. Planning and Budgeting

You can plan your finances better and ensure timely repayments when you have the requisite details outlined in the letter. This helps to avoid penalties and maintain a good credit score.

4.      Legal Protection

The sanction letter serves as a legal document. You can use it as a reference in case of any disputes or discrepancies regarding the loan terms.

Also Read: What is a Personal Loan NOC and Its Significance?

Personal Loan Sanction Letter v/s Personal Loan Disbursement Letter

Though they might sound similar, sanction and disbursement letters serve different purposes:

Think of the sanction letter as the promise, and the disbursement letter as the delivery.

How to Get Personal Loan Sanction Letter?

Here’s how you can receive your sanction letter:

1. Apply Online or Offline through the bank/NBFC of your choice.
2. Submit KYC documents, income proof, bank statements, etc.
3. Undergo credit assessment.
4. Once eligibility is confirmed, the bank issues the sanction letter, typically by email or downloadable from the bank portal.

In most digital loan journeys, this process is quick and seamless.

Documents Required to Avail Personal Loan Sanction Letter

You’ll typically need to submit:

• Proof of Identity (Aadhaar card, PAN card)
• Address Proof
• Income Documents (salary slips or ITRs)
• Bank Statements (last 3–6 months)
• Employment Proof (ID card or offer letter)

Exact document requirements can vary based on the lender and your profile.

Conclusion

A personal loan sanction letter is more than just paperwork—it’s a crucial checkpoint that gives you clarity, confidence, and control before you commit to a loan. It ensures transparency between you and the lender and provides a legal cushion in case of future conflicts.

FAQ Related to Personal Loan Sanction Letter

Can I reject loan after sanction letter?

Yes. A sanction letter is not binding. You can choose to reject the offer if you’re not satisfied with the terms or if you find a better deal.

What happens after loan sanction letter?

Once you accept the sanction letter, you’ll need to submit any remaining documents and sign the agreement. After final verification, the lender disburses the loan amount to your account.

Can you increase loan amount after sanction?

Usually, no. If you need a higher amount, you’ll have to reapply or request a reassessment. Approval depends on eligibility and creditworthiness.

Can Personal Loan be Canceled after Sanction?

Yes, it can. Either party—the borrower or the lender—can cancel the loan before disbursement. However, any processing fees already paid may not be refunded.