How To Use A Sanction Letter To Get A Low Interest Rate

What is a loan sanction letter?

Banks or NBFCs issue a letter to the applicant, in addition to having knowledge of the loan application, stating that they are being funded for the need and must complete all the formalities of the bank or NBFC.

What is the difference between loan approval and loan disbursement?

Often, people get confused in loan selection and loan disbursement while applying for a loan. Let us tell you what is the difference between the two?


              Loan Sanctioning            Loan Disbursement
Main purposeA sanction letter only gives the applicant the guarantee of the loan approvalLoan disbursement is the final step of the loan process, where the financial institution transfers the final approved amount to the borrower.
What is it?The sanctioned amount is the amount, which has been approved by the lender after due diligence.The actual disbursed amount is the amount which has been finally disbursed
Validity periodThe validity of the loan sanction letter is 6 months. Once that is over, an applicant has to go through the entire process again. The sanction letter states the loan amount, tenure and interest rate among other terms and conditions.The disbursed amount comes with a disbursement letter which does not have any provision of validity.
Time horizonMaximum 48 hrs, as soon as the due diligence is done by the lendersCan be done immediately after the approval
Interest RateBased on credit score and applicants profileDepends on how much the applicant can negotiate. The interest rate will be applied as on the date of disbursement and not as per the sanction letter.


It should be noted that loan selection letter is not a legal approval of the loan. In each organization, the validity of the sanction letter varies. After its expiry, the applicant has to reapply for the loan and go through the entire process again.

How can you reduce the interest rate with loan sanction letter?

Generally, most banks offer pre-approval loans to new and existing customers. There is no problem in the process with pre-approval loan. After financial and loan approval, the bank reviews the loan application of the applicant, which is valid for a certain period only. Now the loan can be called pre-approval.

If you want to take a loan at a lower rate, you can negotiate a loan rate with the lender through a loan selection letter. Since the loan selection letter has a duration of 6 months, you have enough time to find offers from other financial institutions.

What does the sanction letter do in the case of a business loan?

Suppose a businessman needs a business loan of Rs 30 lakh for 4 years. On applying to a bank, he was given a loan of Rs 20 lakh at higher interest rates. The documents that he has given to the bank are not sufficient to get the required amount. Considering the nature of the business, the interest rate was also offered more.

The applicant found that the interest rate is much higher than the market rate. He cannot take a loan at such high interest rates. Some of his companions advised to find another lender who would loan at low interest rates. By negotiating a new bank or financial institution, he got a better deal, which is within his budget.

Factors affecting the approval letter from the bank

Getting loan letter letter from financial institutions is a big part of the process. The lender conducts a thorough examination of the documents or documents that the applicant presents, after which the loan is approved or rejected. All the aspects of the loan application are verified before the applicant sends the loan selection letter.

If the applicant refuses to take the funds at the approved interest rate, then he can take a loan from another personal loan lender at a lower interest rates, which does not fall heavily on his budget.

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