A loan sanction letter is an official document issued by a lender (bank or financial institution) to a borrower, confirming approval of the borrower’s loan application. It includes details such as the approved loan amount, interest rate, repayment schedule, terms, and conditions. It serves as a formal agreement between the lender and borrower, outlining the terms of the loan agreement.
The bank or lending institution issues after checking that the borrower meets the eligibility criteria. The students can also submit the loan sanction letter to their university as evidence of financial support. Let’s understand in detail all about an education loan sanction letter.
What is an Education Loan Sanction Letter?
An education loan sanction letter is a letter that states the approval of a loan by the lender. All the major details of the education loan like interest rate, net eligible loan amount, repayment period, EMI amount, and details of course and university. However, the loan sanction letter is not the final loan agreement. The borrower still needs to provide the documents to the lender. Check more details below:
- After the sanction of the loan, you can check all the details and decide whether to proceed with the loan or not
- If you want to take the loan, you need to submit certain documents to the bank or lender like the admission letter, visa approval letter, details of travel and health insurance etc
- Post submission, the bank will verify the documents and initiate the process of loan disbursement
Steps to Issue the Letter by the Lender
When you submit an education loan application to a bank, the bank starts the verification process. All the details which you mention in the loan application form are verified properly and it shall be supported by a valid document. Check more details below:
- The credit history and credit score of the applicant
- Applicant’s ability to repay the loan. For this purpose, the applicant’s debt-to-income ratio, net monthly income, liabilities etc are considered
- The sources of income of the candidate are verified
- The documents submitted are verified and the lender checks if there is any outstanding debt that the borrower has.
Significance of a Loan Sanction Letter
A sanction letter is important for several reasons. Some of these reasons are listed below:
- It is a letter of acceptance that comes with a validity
- A sanction letter allows further processing of the loan application
- Applicant can read the sanction letter to decide whether to go ahead with the loan application
- It also gives an opportunity to the borrower to negotiate lower interest rates & easier terms with other lenders
Also Read: Loan Related Terms That Every Student Should Know!
What is Included in a Loan Sanction Letter?
The format of the sanction letter remains the same. However, the details included would differ on the basis of the loan.
- Loan application number
- Residential address of the applicant
- The loan category under which the loan is offered
- The amount of loan sanctioned
- Tenure of the loan and the Rate of interest
- EMI is applicable and the processing fee
- Type of interest and the base rate at which interest is calculated
- Aside from these details, the validity of the sanction letter, details of loan processing, and the situations in which the loan can be revoked will also be mentioned
Also Read; How To Get An Education Loan Against Property To Study Abroad? Here’s The Answer!
Validity of a Loan Sanction Letter
The validity of this letter is generally for a period of 6 months. During this time frame, the borrower has to avail the loan. If the letter has expired or the loan is revoked then the borrower is required to make a fresh application. Thus, the borrower has to meet the eligibility requirements set by the lender and make a fresh loan application.
Documents Required
Several documents have to be submitted to receive a sanction letter. These are as follows:
- Loan application form
- Identification documents/KYC documents
- Address proof of the applicant
- Last 6 months’ bank statements
- Form 16/income tax returns
- Salary slips for the last 3 months
- Proof of business/business financials (self-employed)
- Income tax returns of the last 2 years (self-employed)
How is a Sanction Letter Different From In-Principle Approval and Disbursement Letter?
A sanction letter, in-principle approval letter, and disbursement letters are different. The following are the main differences between an in-principle approval letter and a sanction letter.
| Particulars | In Principle Approval | Sanction Letter |
| Meaning | Guarantees the approval of the loan subject to document verification | States that the applicant has become eligible for the loan |
| Fee Charged for loan processing | Yes | No |
| Validity | 6 months | Can change depending on the applicant’s loan eligibility |
| Formalities left | No | Yes |
| Legal approval | — | No |
| Bank verification of documents | Yes | Yes |
| Example | Pre-approved home loans | Personal loans |
After the bank verification of documents, the loan is disbursed. The disbursal of the loans takes place after the loan agreement is drafted, stamped, and signed. The bank will keep the documents as security till the loan is repaid. A loan disbursement letter is issued after the loan amount has been granted. It contains details of the loan paid by the lender.
What Happens After You Receive the Sanction Letter?
After receiving a personal sanction letter, the bank will send a certified offer letter mentioning important details of the loan. The loan applicant needs to sign the document and submit it to the lender. At this stage, the borrower must carefully read and understand the terms and conditions.
What is a Digital Sanction Letter?
The personal loan application process has been simplified and made digital. Several banks offer the facility to customers to digitally apply for a personal loan. Thus, the loan applicant can get a digital sanction letter. As the name implies, a digital sanction letter is a sanction letter sent digitally to the loan applicant.
Also Read: Can You Get A Study Abroad Education Loan With Low Cibil Score?
FAQs
A loan sanction letter is a document sent by the lender to the applicant. The document states that the loan applicant is eligible for the personal loan.
The total amount of time taken to sanction a loan and the disbursement is 72 hours.
A sanction letter is not legally binding. It means the banks can reject your loan application if you do not meet the terms and conditions.
A sanction letter is an important part of the loan application process. However, it is not legally binding. A sanction letter does not legally approve the loan. Loan applicants have to undergo document verification, and background checks before the loan agreement is drafted. Applicants who get a the letter must go through the details of the loan and consult the lender for any discrepancies. It is important to bring to the notice of the lender such issues before the next stage of loan approval begins. For any student loan, bank account, or money-related queries, contact the Fly. Finance Team.
