When you place an application for a personal loan, the initial step that an NBFC or bank takes to approve your application is a loan approval letter. While not the official agreement, this letter may be viewed as proof that the lender deems you a credible borrower. This approval letter from your lender is the initial measure in a loan disbursement procedure.
What does a personal loan letter of sanction contain?
So, whether you apply for a Kotak personal loan, Bank of India Baroda personal loan, SBI personal loan or personal loan from any other lender, the personal loan sanction letter would contain the same details and terms and conditions for most individuals. Besides mentioning your details as a borrower, the letter would even state the approved loan proceeds, offered rate of interest, repayment loan tenure, EMI proceeds and loan processing charges. For computing the personal loan EMI as per your repayment capacity, you can take the help of an online Kotak personal loan EMI calculator. The online calculator will ask for only three important inputs namely loan proceeds, rate of interest and repayment tenure. Once you have inputted all three inputs as per your repayment potential and preference, you will get the final EMI and interest constituent figure. If you are not satisfied with the figures, you may make changes to the input to derive the preferred outcomes. Once you get the preferred outcomes, you can negotiate with the lender for the same deal.
The letter would even contain the following –
- Your application number for a personal loan
- Category of the loan under which you are being offered the credit
- Whether the interest rate is floating or fixed
- Base rate for computing the loan interest constituent
Availing a loan sanction letter is an important step –
As a loan sanction letter is a crucial step and not the ultimate agreement in the case you are not happy with any conditions specified in the same, you can renegotiate the terms with the lenders. You must even flag any errors that you may have noticed in the letter.
Just stay prepared and be aware of what’s coming your way. Experts recommend that you must always compute the eligibility of the personal loan before placing an application with the NBFC or bank. This has another benefit – in the case, your personal loan eligibility is not as required, you can take some time for improving the same and then put forward an application with the rectified credit score. For instance, you must ensure to timely repay your debts in full as these would reduce your score considerably. Additionally, you must even use an authentic online personal loan EMI calculator to get a complete idea regarding the amount you would be required for paying on specific loan proceeds, rate of interest and loan tenure. Generally, for personal loans, the loan repayment window is usually between one year and sixty months.
You are still far away from the ultimate loan agreement –
Post-reading the letter carefully, you must take the decision if you agree with the terms and conditions mentioned in it. Your sanction letter for a personal loan generally comes with a period of validity, which is no longer than six months.
To take forward the loan grant procedure, you would require to demonstrate your acceptance of the loan sanction letter under the validity period and provide all your required documents for the next processing phase. The financial institution would draw the final agreement just after authenticating all your provided documents.
What are the parameters factored in before issuing the loan sanction letter?
As soon as the financial institution i.e., the NBFC or bank gets the personal loan application, they first ensure to perform a financial background check i.e., the applicant’s history check. A few of the important factors that are viewed are –
- Your nationality – You must be an Indian citizen
- Your age – Must fall between 21 and 60 years. Also, lenders prefer lending if you are self-employed or a salaried individual.
- Your CIBIL score and credit history – A score of 750 and above is preferred by lenders for approving your loan application.
- Your income status and employment – Being a salaried individual, you must show at least three years of constant and stable work experience. Self-employed individuals must demonstrate a minimal business continuity of five years.
- All income sources that you hold – This would be important in deciding your DTI (debt to income) ratio or your potential to repay the borrowed fund.
- If you have other active loans – Try and close the past loans before placing an application for the new one.
- Genuineness of all documentation – The lender tends to review and authenticate all the documents you submit before approving your personal loan application.
Documents you must submit to avail the loan sanction letter are –
- KYC documents
- Business or employment proof
- In the case of employment, salary documents for the last few months must be produced
- Self-employed persons need to submit their company’s balance sheet and income tax return documents
- Bank account statements for the last few months
- Any other crucial document as per the request of the lender
Why can’t you get a final loan agreement?
Loan application approval and grant are delicate procedures requiring in-depth study regarding the borrower’s credit-linked background and present financial condition. From the perspective of the lender, a personal loan sanction letter is a document in writing stating the entire bank’s terms and conditions while providing the loan proceeds.
From the point of view of a borrower also, a personal loan sanction letter does the work. This letter endows you as a borrower with the chance to thoroughly study the conditions based on which the credit application is approved. Until the time the final agreement of the loan is taken up, there are chances to renegotiate the terms to secure a better deal i.e., lower rate of interest, higher loan repayment tenure, decrease or waiver on processing charges and others.
