• The importance of a loan sanction letter cannot be overstated when applying for a personal loan. A letter of loan sanction is evidence that the lender has granted your request for a loan. A loan sanction letter is given once the lender has verified your paperwork and determined that you match the eligibility requirements. It is the initial phase of loan disbursement.
  • A Personal Loan sanction letter acts as an approval letter that the borrower receives from the lender. It is one of the most important documents as through this letter, you are informed about the loan amount, tenure, EMI amount, Personal Loan interest rate, and processing fee.
  • However, it is important to note that a sanction letter is not the final loan agreement document. Thorough background and document verification is performed before a sanction letter is issued.

What is the importance of a Personal Loan Sanction Letter?

  • A Personal Loan sanction letter can be considered a letter of acceptance issued by the lender which also has validity. Without the sanction letter, it is impossible to proceed with the loan application. As the loan sanction letter contains important information, you can choose whether you want to proceed with the loan or not based on the terms and conditions mentioned in it.
    Based on the loan sanction letter, you can also negotiate with other lenders to get the best Personal Loan interest rates and terms. The format and contents of a Personal Loan sanction letter might differ from lender to lender. But the details in each loan sanction letter always remain the same. A loan sanction letter includes:
  • A Personal Loan sanction letter can be considered a letter of acceptance issued by the lender which also has validity. Without the sanction letter, it is impossible to proceed with the loan application. As the loan sanction letter contains important information, you can choose whether you want to proceed with the loan or not based on the terms and conditions mentioned in it.
  • Based on the loan sanction letter, you can also negotiate with other lenders to get the best Personal Loan interest rates and terms. The format and contents of a Personal Loan sanction letter might differ from lender to lender. But the details in each loan sanction letter always remain the same.

A loan sanction letter includes:

  • Your Personal Loan application number
  • Loan category under which the loan is offered
  • Your residential address
  • Sanctioned amount
  • Rate of interest
  • Accepted loan tenure
  • The base rate for interest rate calculation
  • Applicable EMI
  • Interest type (floating/fixed)
  • Processing fee


In addition to the above mentioned components, the lender will also mention the terms and conditions applied on a Personal Loan. For instance, the letter will contain information regarding its validity, conditions, and situations under which the sanction letter may be revoked, and details for processing the loan application.

Also Read: What all can a Personal Loan be used for?

What are the documents needed for a Personal Loan Sanction Letter?
Procuring the required documents is the first step to take while applying for a Personal Loan or a Business Loan. Self-employed employees seeking for Personal Loan or Business Loan need to present proof of their income, proof of their business, business operations, and finances audited by a CA for 2 years, and income tax returns for 2 years.

Below are the documents required for a Personal Loan sanction letter:

  • Filled loan application
  • Identity proof (KYC documents)
  • Address proof (residential)
  • 6 months bank account statement
  • Last 3 months’ salary slips
  • Form 16 or income tax returns


What are the steps taken by the lender to issue a Personal Loan sanction letter?
After receiving the loan application, the lender conducts the following tests to validate your eligibility for a Personal Loan or Business Loan.

  • Credit score and credit history
  • Applicant’s debt-to-income ratio or ability to pay back the loan amount
  • Employment and income status of the applicant
  • Source of income
  • Outstanding debt if any
  • The authenticity of the submitted documents

Once the lender is satisfied with the documents provided, the borrower is issued a loan sanction letter. To increase your chances of getting loan approval, you can use an online personal loan eligibility checker before applying for the loan. Basis that, you can work on the factors that need a little tweaking to improve your chances of availing of a Personal Loan.

What is the validity of a Personal Loan sanction letter?

  • Typically, a loan sanction letter is valid for up to 6 months. If you are borrowing a Personal Loan, you need to take the loan within 6 months of receiving the loan sanction letter. In case the loan sanction letter expires or gets revoked, the borrower may start the loan application process again and submit all the necessary documents for a fresh loan sanction letter.
  • You can also use a personal loan EMI calculator online to determine your monthly EMIs and loan tenure. This will help you manage your finances in a streamlined manner to avoid any late payments that might hamper your credit score.

Also Read: 9 Personal Loan Benefits You Need To Know

Summing Up
A Personal Loan sanction letter is not proof of acceptance and cannot be considered legal proof of loan acceptance. A lender has to go through additional background checks and verification before the final loan agreement is drafted.

Once you receive the loan sanction letter, carefully go through all the terms and conditions, loan amount, EMI amount, and other details before going forward with the loan. If you find any errors in the loan sanction letter, you can also get them rectified by the lender to avail of funds at the earliest.

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