What Are the Key Disbursal Documents for a Personal Loan? A Comprehensive Guide.

A personal loan is a fast and flexible funding option for individual needs. Most lenders now process personal loan applications online and complete them within 72 hours.

After a personal loan is approved, the customer is informed of the loan terms. If the customer agrees, the disbursement process begins, and the funds are credited to the customer’s account via ECS (Electronic Clearing Services).

Once the customer is reassured that the loan amount is approved and he will receive the funds, he may overlook the importance of gathering key personal loan documents for future transactions. Customers need to review the lender’s loan documents and note the terms that will affect costs and the overall process. Listed below are the key documents customers must retrieve and have in safekeeping.

The Personal Loan Agreement.

The Personal Loan agreement is a legally binding document for both parties. Upon approval of the personal loan, the customer must accept the terms and sign the agreement before the lender releases the funds.

Banks offer online disbursal systems so that customer can access the Loan Agreement, review the loan terms, and sign it electronically. This helps reduce paperwork and expedite processing.

The Personal Loan agreement includes the following:

Details of both parties.
Self-Attestation, and the signatures of the Lender and Borrower.

Significant terms to be noted in the Agreement include:

The Interest Rate is the cost of funds at which the loan is given.
Processing fees, or the file charges for the loan services.
The Loan tenure is the repayment term for the loan.

The EMI, or monthly instalment, is to be paid and remains fixed for the term.
The foreclosure and part payment clause and charges.
Penalties for delayed payments.

What is the Importance of the Personal Loan Agreement?

Gives the customer transparency for the complete terms under which the loan has been sanctioned.
Enumerates the terms of the loan for future reference, in case the customer wants to repay it before the term ends.
Clarifies the loan costs, rights and responsibilities, mitigates the associated risks involved.

The personal loan agreement is not just an instrument to receive your loan amount; reading the terms carefully will alert you to your obligations and the penalties involved. The lender is also responsible for fulfilling the terms set at disbursement and cannot deviate from them. It is advisable to hold a copy of the agreement for ready reference till the full term of the loan expires.

The Sanction Letter.

The sanction letter is the first formal communication the customer receives regarding the approval of the Personal Loan request. Once the application is processed and a final decision is made, the loan amount and terms are finalised. The sanction letter contains the loan details, and at this stage, the customer can request a review of the loan amount if additional funds are required or if they decide to borrow a lower amount.

What are the Contents of the Sanction letter?

Once the customer accepts the terms of the sanction letter, the Lender will initiate the disbursement or the repatriation of funds. The Sanction letter details the following information:

The Loan account number for further reference.
The Name of the Customer, Address and contact details.
The Personal Loan amount is sanctioned based on the applicant’s eligibility.
The Repayment Tenure for the personal loan is from 12 months to 72 months.
The monthly EMI amount and date to be deducted from the Bank account.

What is the importance of the Sanction Letter?

The sanction letter confirms that the Lender has agreed to approve the personal loan amount.
The terms and conditions of the loan approval are clearly defined in the sanction letter.
The Loan amount approved in the sanction letter will be transferred to your account after deducting the processing fees, insurance charges and the Pre Emi (if applicable).
The sanction letter is valid for 30 days; within this period, the applicant must sign the agreement and initiate the disbursal process.

If the applicant does not disburse the approved loan amount within 30 days, the sanction letter is declared invalid. On expiry of the sanction letter, the applicant will have to reapply and submit the required documents for the loan again. The entire process is reinitiated as if for a new loan. It is beneficial to sign the agreement and initiate disbursal of your personal loan within 30 days, as there is a chance that, if you reapply, you may not be awarded the same terms.

The Amortization schedule.

After your Personal Loan is disbursed, loan repayments take precedence over other payments. The amortisation schedule helps you take a closer look at your loan cost and repayment plan. If you do not receive your amortisation schedule, do make it a point to request it, as it is an invaluable asset that helps you understand the repayment structure.

The amortization schedule details the following:

The Customer details and the loan account number.
The total loan amount credited after deductions are applied.
The interest rate is applied to a monthly reduced Balance.
The tenure is sanctioned for the monthly EMI repayment.
The breakup of each EMI, the principal amount, and the interest factor.

What is the relevance of the Amortization schedule?

With the Amortization schedule at hand, you can easily check the status of your loan.

How many EMI have been paid?
What is the principal amount you have repaid to the Bank?
What is the amount of interest paid to date?
What is the principal amount balance if you are seeking a balance transfer to an external lender or need to foreclose the loan before completing the tenure?

Initially, the interest component of the EMI is larger than the principal amount; as the tenure progresses, the principal and interest components repaid are in equal measure; thereafter, the principal amount forms a major part of the EMI.

If you make a part payment towards the principal amount, the schedule will be adjusted; usually, the Bank will reduce the loan tenure rather than the EMI. You can, thereafter, ask the Bank for a new schedule with the reduced tenure.

The Amortization schedule of your loan is a ready reckoner for your loan’s financial status; having a copy on hand is essential. Checkout the sample illustration below for further understanding:

The Loan amount issued to the customer is ₹500000 Lakhs.
The monthly reducing interest rate is @ 10.50%.
The annual interest rate is 5.78%.
The repayment tenure is 12 months.
The monthly EMI payable is ₹44074.

*LOAN SCHEDULE*
*MONTH*	*EMI*	*INT.*	*PRIN.*	*PRIN. O/S*
0	*0.00*	*0.00*	*0.00*	*500000*
1	*44074.30*	*4375.00*	*39699.30*	*460300.70*
2	*44074.30*	*4027.63*	*40046.67*	*420254.03*
3	*44074.30*	*3677.22*	*40397.08*	*379856.95*
4	*44074.30*	*3323.75*	*40750.55*	*339106.40*
5	*44074.30*	*2967.18*	*41107.12*	*297999.28*
6	*44074.30*	*2607.49*	*41466.81*	*256532.47*
7	*44074.30*	*2244.66*	*41829.64*	*214702.83*
8	*44074.30*	*1878.65*	*42195.65*	*172507.17*
9	*44074.30*	*1509.44*	*42564.86*	*129942.31*
10	*44074.30*	*1137.00*	*42937.31*	*87005.00*
11	*44074.30*	*761.29*	*43313.01*	*43692.00*
12	*44074.30*	*382.30*	*43692.00*	*0.00*

Key Points to note:

The principal outstanding reduces every month with the EMI paid.
The interest is applicable on the reduced principal quotient.
At the halfway mark, the interest quotient reduces.
The Interest rate and EMI remain constant for the entire tenure.
Interest is charged yearly.

Foreclosing on the loan after the midpoint is not practical, as most of the interest has already been paid.

FAQ


		
		
					Will the copies of my Loan disbursal documents be sent to me by email, or will I receive hard copies?
					
						Most lenders have now adopted online methods for communication and document dispatch for convenience and speed. Customers also find it suitable to sign the personal loan agreement online and disburse the loan amount instantly. Only Axis Bank still issues hard copies of the personal loan agreement.
					
				

					Can I cancel my personal loan after the loan agreement has been signed and the loan is disbursed?
					
						Once your Personal Loan Agreement is signed and the terms are accepted, the disbursement process begins. Customers can self-disburse the loan amount via the link sent by the Bank.  After the disbursal process, the funds are credited to the customer's account via ECS (Electronic Clearing Services). If the applicant has made alternate arrangements and does not want to avail the funding, at this stage, the following are to be noted:

 	The customer has up to 15 days to initiate the loan cancellation, known as the cooling period. 
 	The request to cancel the loan must be communicated to the bank's customer care immediately, in writing. 
 	The customer will be responsible for paying the cancellation charges, and any deducted processing fees will not be refunded. 
 	If the cooling period has expired, the customer must pay foreclosure charges that range from 3% to 5%. 
 	The applicant will also need to pay interest for the days the funds have remained in the account.

					
				

					If I misplace my loan disbursal documents, is it possible to obtain copies?
					
						The disbursal documents for your loan are important and should be available when needed. Keeping hard copies or storing the records online will make them easily accessible. If you have misplaced the documents, you can request copies from the lender by contacting the customer care department either by phone or online. Charges will be applied in accordance with the Lender's policy.

					
				

					Will I receive my Personal Loan Amount after I receive the Sanction Letter?
					
						The Sanction Letter informs the customer of the approved loan amount and outlines the terms and conditions. The customer might need to submit additional documents specified in the sanction letter as a condition for approval. Once the customer agrees to the terms, the loan amount is disbursed after signing the loan agreement.
					
				

					Can a personal loan be declined after the sanction letter is issued?
					
						The Bank will perform due diligence on the submitted documents after the loan is approved. If discrepancies are found, the approval may be delayed or revoked.
					
				

					Are the terms and conditions of the loan in the Sanction letter negotiable?
					
						The terms of the Sanction letter are not binding on the applicant; they may choose to request a lower interest rate, an increase in the loan amount, or a change in the tenure.