As the name indicates the sanction letter or the loan sanction letter is issued by the bank or the lending agency to the applicant of the loan. This letter acts as proof that the loan applicant is eligible for the amount of the loan for which they might have applied. This sanction letter also consists of Terms and Conditions which the lender might like to apply for the loan amount.
Importance of Sanction Letter
The loan sanction letter is an indicator that the loan which the borrower has applied for has been approved. This loan sanction letter will enable the borrower to go forward with the task for which the loan has been sought, even if it might take some days before the actual amount is transferred to the account of the borrower.
Process of Sanction Letter
The sanction letter is signed by the competent lending authority to indicate that the applicant has been found eligible for the loan amount. This sanction letter is approved subject to the borrower fulfilling the formalities which have been prescribed by the lender. This sanction letter is usually approved after examination of different aspects like:
- Credit history of the applicant
- The income of the applicant
- Repayment capacity of the applicant
- The correctness of information submitted by the borrower
The banks also charge some processing fee for the efforts they make to prepare the sanction letter.
What does the Sanction Letter State?
The sanction letter in most cases will state the following:
- The total amount of loan sanctioned.
- Tenure of loan repayment.
- Type of interest that is applicable to the loan.
- Base rate at which the interest has been calculated.
- EMI per month in cases where it is applicable.
- Period of validity of sanction letter.
- Detailed terms and conditions which the lender would like to incorporate in the letter.
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