The lender evaluates your profile and looks at various factors to determine your repayment capacity. These are
Your lender will first look at your credit history or credit score. The lender receives your credit report from the credit agency. In the report, the lender will look at the total number of outstanding debts, the repayment pattern, settlement information, and the number of applications submitted recently (hard inquiries).
If this report is good and there are no negative comments, a sanction letter could be issued quickly.
The debt-to-income ratio (DTI) tells your lender how much of your monthly income goes toward EMI. If you have a higher income, say Rs 75,000 per month, but pay Rs 60,000 to clear your various monthly debt obligations, your chances of loan rejection are very high.
The lender typically prefers a DTI of less than 50 to approve a loan and send a sanction letter. You can figure out this ratio using the formula below.
DTI: (Total EMI) ÷ (Gross Monthly Income)
Typically, lenders have different eligibility requirements for salaried and self-employed borrowers. If you work for a government department or multinational corporation, the sanction letter dispatch process will be much faster. The reason is simple – the assurance of payback is higher. These organizations are known for making timely payments and the chances of layoffs are very low. If you work for a start-up or a small business, the lender will be extra cautious when performing credit appraisal and may charge higher interest.
This is not the most important factor, but it does contribute to quick loan approval. If you are salaried but also work part-time or freelance, the lender will not hesitate to send you a loan sanction letter. Showing multiple sources of income gives the lender added assurance of your pay back capability. In case you do not have an additional income, you can add a co-applicant to your loan application.
Other requirements for quick personal loan approval include:
Parameters | Description |
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Citizenship | Indian Resident |
Minimum age | 21 years |
Maximum age | 58 years |
Monthly income | Rs 15,000 (monthly) |
Work experience |
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Income statement | Last six months |
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You will only need your KYC papers, employment continuity proof, and income proof to get a sanction letter. Here is an explanation of the documents that serve as evidence for the preceding.
Mandatory documents |
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Identity proof |
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Residence proof |
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Employment continuity proof |
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Income proof |
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Your loan sanction letter is not a legally binding contract between you and the lender. However, it is still very crucial. Here is why.
The validity period of the sanction letter differs with lenders. Most financial institutions will proceed with the remaining steps involved in the disbursement process if you respond to this letter within six months from the dispatch date.
If you do not respond within the specified time, the letter will expire, and you will have to make a new loan application and go through the entire application process again, including document submission, application filling, and so on.
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The lender always sends the loan sanction letter to your registered email address before dispatching the final loan agreement. The main reason for this is transparency. As previously stated, the letter details every detail affecting your repayment capacity, such as interest rate, EMI, tenure, and so on. If you believe something should have been discussed with the lender beforehand, or if any information is unclear, the sanction letter gives you the opportunity to resolve it through proper communication.
The sanction letter allows you to review the terms and conditions under which your funds will be disbursed. If you believe the letter does not reflect your credit profile, you can renegotiate better terms and get a better deal before the final drafting of your loan agreement. Your loan sanction letter allows you to negotiate processing fees, repayment duration, interest rate, and other fees.