When you place an application for a personal loan, the lender reviews your application and, based on that, decides whether to approve your application. For instance, suppose you applied for HDFC personal loan through the HDFC platform. Upon receiving your application, HDFC bank will first review your application, your income and your credit score and, based on their assessment, decide your eligibility for HDFC personal loan. If your credit score and repayment capacity both are good, you may avail of loan approval at lower HDFC personal loan interest rates. However, in case your eligibility for HDFC personal loan is low, then the lender may either turn down your application or approve it at higher HDFC personal loan interest rates to compensate for higher credit risk. 

When you place an application for a personal loan, the lender provides you with the loan sanction letter, which is of utmost importance. A sanction letter acts as assurance proof that the bank has accepted your loan application request. When you meet all the loan eligibility parameters, and the bank authenticates your loan documents, it issues a loan sanction letter. This is one of the initial steps towards the disbursement of your loan. 

Through the personal loan sanction letter, you get information linked with the loan amount, repayment tenure, EMI proceeds, processing charges and personal loan rate. However, it is necessary to remember that getting a loan sanction letter is not the final agreement from the lender. 

What’s the importance of a sanction letter?

A sanction letter of a personal loan can be looked upon as an acceptance letter issued by the bank, which comes with validity. Without the loan sanction letter, it is not possible to go ahead with your loan application. As a loan sanction letter consists of vital details, you can select whether you want to go ahead with your loan depending on the mentioned terms and conditions. 

Depending on the personal loan sanction letter, you even can negotiate with other bank lenders to avail the best interest rate on a personal loan. The contents and format of a sanction letter of a personal loan may vary from one lender to another. However, the detail in every letter always stays the same. A personal loan sanction letter consists of the following – 

·       Your loan application number

·       Your residential address

·       Loan category under which you received the loan

·       Interest rate

·       Sanctioned amount

·       Accepted loan repayment tenure

·       Base rate for the rate of interest computation

·       Applicable loan EMI

·       Interest type, whether fixed or floating

·       Processing charges

In addition to the components mentioned above, the lender also mentions the terms applied to the personal loan. For example, a letter contains details linked with conditions, validity and situations based on which the letter might be revoked and the details for loan application processing. 

Also Check: HDFC personal loan interest rates

What are the major documents required for availing sanction letter of a personal loan?

Arranging the required loan documents is the initial step to go for while placing an application for a personal loan. Self-employed employees looking for personal loans require to present their income proof and other personal documents like identity proof, six months’ bank account statement, address proof, past three months’ salary slips, and form 16 along with the filled-out loan application form. 

What are the major steps that lenders take to issue you the sanction letter of a personal loan?

Post receiving the personal loan application, the lender conducts an in-depth validation to check your personal loan eligibility. They majorly check the following – 

·       Your current credit score and past credit history

·       Your debt-to-income ratio or fixed obligation-to-income ratio or your potential to repay the borrowed loan amount

·       Your income and employment status

·       Your income sources

·       Your outstanding debt and credit card dues, if any

·       The authenticity of your submitted documents

Once the bank is satisfied with all the documents that you have provided, you, as a borrower, may receive the personal loan sanction letter as soon as possible. To enhance your chances of availing of loan approval, you must use the online personal loan eligibility checker before you place an application for the loan. Based on this, you can effectively work on the parameters that require slight tweaking to ameliorate your chances of getting the personal loan approval.

Major areas where you can work to increase your personal loan eligibility chances are your repayment habit, your credit utilization ratio, and your credit mix. Ensure to repay your loan EMIs and all your credit card dues in full to the bank. Doing so keeps your credit history good and boosts lenders’ confidence in you to provide you with more credit in the case of monetary crunches or shortages. Besides this, to maintain a good credit score to keep your personal loan eligibility high, ensure to keep your credit utilization ratio within 30 per cent and maintain a balanced credit mix, i.e., a balanced mix between secured and unsecured credit options. 

What’s the validity of the sanction letter of a personal loan?

Basically, a personal loan sanction letter is usually valid for a maximum of six months. This means if you are looking to take a personal loan to meet your monetary shortages, then you must allow the lender to disburse within six months of receiving the personal loan sanction letter. If the personal loan sanction letter expires or is revoked, you must begin the application procedure again, i.e., provide all the required documents and fill out the application form for a fresh personal loan sanction letter. 

Also, you can use the online personal loan EMI calculator to decide your monthly EMIs as well as your loan repayment tenure. This will assist you in managing all your finances well in a streamlined way to avoid late payments, which may impact your credit score negatively. 

Ending note

The sanction letter of a personal loan is just acceptable proof that your loan application is approved. However, it is not proof that the amount has been disbursed to your bank account. To get the amount disbursed to your bank account, you must submit in writing a letter asking the lender to disburse the sanctioned loan amount. Once the loan amount is disbursed, you will receive a disbursement letter, which is the final loan document. After the loan is disbursed, you must start with the EMI repayment.