What is Personal Loan Sanction Letter

Personal loans are a great way to arrange for urgent funds for emergencies. A personal loan sanction letter is a document provided by the lender to confirm the approval of the loan.

What is Loan Sanction Letter?

Want to know ‘what is sanction letter’? A personal loan sanction letter is not very different from a general loan sanction letter. It is a legal document that provides written confirmation that your loan has been approved and that it will be sanctioned soon.

It is proof that your lender is going to provide you the loan amount under the predecided terms and conditions. The lender verifies certain details about you before giving you a sanction letter. They are mentioned below -

• Credit score

• Credit history

• Repayment capacity

• Employment status

• Income

• Debt to income ratio

• Documents submitted

The fact that all your documents have been verified and you will be given a loan is put in black and white on a personal loan sanction letter.

Contents of a Sanction Letter

Now that you know ‘what is loan sanction letter’, let us look at what it contains. The contents of a loan sanction letter are described below - 

• Details of the Parties Involved

The details of the lender and the borrower are mentioned on a loan sanction letter.

• Sanctioned Loan Amount

The loan application number along with the loan amount that has been sanctioned is clearly mentioned on a loan sanction letter. It might be different from the loan amount that you applied for. The amount mentioned on the sanction letter is what was approved for you based on your creditworthiness.

• Type of Loan

Whether it is a personal, business, home loan, or any other type of loan is an important fact. The category of loan you applied for is also written on the loan sanction letter. 

• Rate of Interest

The interest rate varies based on your creditworthiness, your loan amount, tenure, and many other factors. It plays a huge role in any loan as it determines the amount of EMI that needs to be paid every month.

The rate of interest is, thus, mentioned on a loan sanction letter.

• EMI Amount

Term loans are repaid through Equated Monthly Installments or EMIs. You need to pay a certain amount on a specific date each month for a predecided duration to clear the loan. This amount is also written on the loan sanction letter.

• Loan Tenure

The loan tenure is the duration through which you need to pay the EMIs in order to clear the loan. It can vary depending on your loan and your specific profile. Whether short-term or long-term, you can find the the number of months or years on the loan sanction letter. 

• Fees and Other Charges (if any)

There are many types of charges associated with loans, such as processing fees, foreclosure charges, etc. These are all mentioned on a personal loan sanction letter.

• Insurance Requirements

If there are any insurance regulations or requirements with the loan that is being approved, that also needs to be noted down on the sanction letter.

Benefits of a Personal Loan Sanction Letter

A sanction letter is an important document when it comes to loans. Here are some of the benefits of a personal loan sanction letter - 

• Provides you protection that the loan has been sanctioned to you on the mentioned terms

• Puts the transaction in black and white, thus, making it transparent between both the lender and the borrower

• Since it is a legal document, it provides peace of mind that the lender will give the loan amount and the borrower will repay it as agreed