Applying for an education loan to study abroad involves multiple steps and documentation. Among the crucial documents, universities often require a loan sanction letter v/s loan disbursement letter to verify financial support. While both letters serve as evidence of loan approval, they serve different purposes in the loan disbursement process.
Understanding the distinction between a loan sanction letter and a loan disbursement letter is essential for students seeking financial aid. Let’s explore their significance, differences, and frequently asked questions to ensure a smooth education loan process.
Table of contents
Also Read: What is a Loan Capability Certificate
What is a Loan Sanction Letter?
A loan sanction letter is a formal document issued by the bank when your loan has been approved. After the bank receives your application it starts verifying important details like credit history, income proof, PAN card etc.
After the verification the final amount is decided by the bank and the bank issues a Loan sanction letter. All details about the loan like loan amount, EMI, rate of interest, duration etc. are mentioned in the sanction letter.
- You are required to submit your loan sanction letter (duly signed by the issuing authority with a stamp) to your university if they ask for it. In most of the cases, the university asks for a sanction letter prior to the confirmation of admission.
- If you got the desired amount as a loan from the bank and you are comfortable with all the terms and conditions of the loan then you are ready to move ahead with the process.
- However, in case you don’t like any particular thing you can decide whether or not to proceed with the loan from the same bank.
Importance of a Loan Sanction Letter
- It confirms that the bank has approved your loan request based on your financial credentials, including income proof, credit history, and co-applicant details.
- The letter contains crucial details such as loan amount, interest rate, repayment tenure, EMI amount, and applicable terms.
- Many universities require a Loan Sanction Letter at the admission stage to verify your financial ability to pay tuition fees.
- If you are unsatisfied with the terms, you can still choose to apply to another lender without proceeding with the loan disbursement.
Elements of Loan Sanction Letter
Loan Applicant Details
Name of the borrower
Address and contact details
Co-applicant details (if applicable)
Loan Amount Sanctioned
The approved loan amount based on the applicant’s eligibility
Any restrictions on usage (if applicable)
Rate of Interest
Type of interest rate (fixed, floating, or hybrid)
The exact percentage of interest charged on the loan
Loan Tenure
Duration for which the loan has been sanctioned
Options for prepayment or foreclosure
Repayment Terms and EMI Details
EMI amount and frequency (monthly, quarterly, etc.)
Mode of repayment (bank mandate, cheque, etc.)
The due date for EMI payments
Processing Fees and Additional Charges
Loan processing charges
Legal and administrative fees
Prepayment or foreclosure penalties (if applicable)
Collateral or Security Details (if applicable)
Details of pledged collateral (property, fixed deposits, etc.)
Guarantor details (if required)
Validity of the Sanction Letter
The period within which the borrower must accept the loan offer
Consequences of non-acceptance within the validity period
Special Conditions (if any)
Additional requirements, such as insurance coverage
Compliance with lender’s policies
Also Read: Worried about education loan rejection post-sanction? Explore the reasons and learn how to avoid them for a smoother higher education journey.
What is a Loan Disbursement Letter?
After securing admission and finalizing the loan, the bank issues a loan disbursement letter to confirm that the sanctioned amount will be disbursed as per the agreed terms.
The letter is then required to be submitted to the university as evidence of financial support. After getting the loan disbursement letter you need to move ahead with initiating the disbursement process. Check the detailed education loan disbursement process below:
- The bank will transfer the amount of the fee to the university’s account directly. However, it will not be done at once but in instalments which will be decided as per the course structure.
- If you are getting accommodation outside the university then the bank will transfer the allocated amount to your bank account directly.
- For the upcoming instalments, the university will remind you and you need to convey the same to your bank so that fees continue to be paid on time.
Importance of a Loan Disbursement Letter
- The letter serves as proof that the bank has initiated the loan disbursement process.
- It details the amount to be disbursed, the disbursement schedule, the mode of payment, and the account details of the university or student.
- The tuition fee is usually transferred directly to the university in instalments, aligned with the course fee structure.
- If you opt for external accommodation, a portion of the loan may be disbursed to your personal bank account.
Elements of Loan Disbursement Letter
Loan Applicant Details
Borrower’s name and contact information
Co-borrower or guarantor details (if applicable)
Loan Amount Disbursed
The exact amount released to the borrower
The breakup of the disbursed amount (if released in multiple instalments)
Mode of Disbursement
Direct transfer to the borrower’s account
Payment made to the educational institution, builder, or vendor (in case of education or home loans)
Cheque/DD details, if applicable
Loan Account Number
The unique loan account number assigned for tracking repayments
Interest Accrual and EMI Start Date
Date from which interest will start accruing
EMI commencement date and first due date
Loan Repayment Terms
Confirmation of EMI schedule as per the sanction letter
Any modifications based on the disbursed amount
Prepayment and Foreclosure Conditions
Guidelines on early repayment and charges involved
Additional Conditions (if any)
Any special conditions that must be fulfilled post-disbursement
Also Read: Check here all the important stages in the SBI Education Loan Disbursement Process. Know about interest rates, processing time, etc.
Key Differences Between Loan Sanction Letter and Disbursement Letter
The loan sanction letter and the disbursement letter both act as evidence of financial support. You need to submit both letters as per the directions of the university. Check out some major differences between the letters:
| Loan Sanction Letter | Loan Disbursement Letter |
|---|---|
| Issued when the loan is approved but before funds are disbursed. | Issued after finalizing the lender and before disbursement. |
| Acts as proof of eligibility for the loan. | Acts as proof of loan disbursement. |
| Allows flexibility to change the university or lender. | Changing the university after disbursement may not be feasible. |
| The loan may still get rejected after issuance due to verification issues. | Rejection is unlikely after disbursement. |
| Required by the university during the admission process. | Required by the university to ensure fee payment. |
A loan sanction letter and loan disbursement letter are important documents that you will require if you are taking an education loan to study abroad. The university will ask for these documents to check your financial status or support. You must ensure that all these documents are appropriate and in a proper format as directed by the university.
FAQs
A loan sanction letter is a formal communication from the lender (bank or financial institution) to the borrower, approving the loan request subject to certain terms and conditions. It’s an offer of a loan.
A loan disbursement letter is issued by the lender when the loan amount is released or credited to the borrower’s account. It confirms that the loan has been disbursed.
A loan sanction letter usually includes the loan amount, interest rate, repayment tenure, applicable fees and charges, terms and conditions, validity of the sanction, and any specific conditions that need to be met before disbursement.
A loan disbursement letter usually includes the date of disbursement, the loan amount disbursed, the borrower’s account details where the funds were credited, and any deductions made (e.g., processing fees).
You receive a loan sanction letter after the lender has assessed your application, verified your documents, and approved your loan request in principle. It comes before you get the money.
You receive a loan disbursement letter after you have accepted the terms and conditions of the loan sanction letter, completed all the necessary formalities (e.g., submitted post-dated checks, signed loan agreements), and the lender has released the funds.
If you decide to change the university after getting the loan sanction letter you can do it easily. The bank will restart the entire process of the education loan in this case. However, banks may demand some amount as a processing fee.
If you are not satisfied with the terms and conditions or the bank has not approved the exact amount that you demanded then you can choose not to move forward with the same bank. You can definitely approach other banks or financial institutions.
Under some valid circumstances, the bank may choose not to approve your loan. It is advised to the students that provide all required documents and not hide any information.
No, a loan sanction letter is not a guarantee of loan disbursement. The lender can still refuse to disburse the loan if you fail to meet the conditions outlined in the sanction letter or if there’s a change in your financial circumstances.
To learn more about the best bank accounts for students, education loans, forex, banking experience for global students, or international money transfers, reach out to our experts at 1800572126 to help ease your experience with studying abroad.
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