The processing of a loan involves multiple steps. It begins with the submission of an application which a lender verifies. On successful verification, the loan amount is sanctioned and disbursed to you. It is important to remember that loan sanction and disbursal are two different steps in the loan approval process.
A loan is sanctioned when the lender approves your loan application. The sanctioned loan amount is decided based on the information provided by you (applicant) and is subject to fulfilment of the set eligibility criteria. Loan disbursal is the next step wherein the sanctioned loan amount is credited to your account.
If your loan has been sanctioned, here are some important points about its disbursal you must consider.
1. Full vs. Partial disbursal
In the case of certain loans like loans against property or personal loans, the bank typically disburses the loan amount directly to your bank account. This is known as a full disbursal. In the case of home loans or education loans, the bank disburses the sanctioned amount upon receipt of the demand letter from the developer or the academic institute, as the case may be. If the property is under construction, the loan may be disbursed as each stage of the construction is completed. For purchase of a ready-to-move or resale property, the bank makes a lump sum payment for the amount mentioned in the sanction letter to the seller.
For education loans, banks follow the tuition fee payment schedule that is provided by the college/university and start payments after receiving the disbursement letter from the borrower. The tuition fee is either paid to the institute or credited to the borrower’s linked bank account. Other academic expenses such as hostel fees, conveyance, etc., are credited to the borrower’s bank account.
2. Disbursement amount can be revised
The loan sanction letter is issued based on a review of the borrower’s profile and states the loan amount the borrower is eligible for. However, this amount is subject to several terms and conditions.
Before disbursing a home loan, the bank will assess the property chosen by the borrower. This assessment is based on various parameters such as location, size, construction quality, etc. Depending on who the property has been purchased from – reseller or developer, the borrower will need to furnish documents such as the property title, layout, existing owner’s details, associated costs, etc.
After all necessary checks have been carried out, the bank calculates the value of the property. If the bank’s assessed property value is lower than the valuation mentioned in the sanction letter, the bank may reduce the loan amount. However, before doing so, the bank may consider other factors such as the loan-to-value (LTV) ratio or the loan repayment tenure.
3. Own contribution precedes disbursement amount
Home loans, like many other loans, come with a down payment requirement. Banks typically offer home loans ranging from 80% to 90% of the property value (called the loan-to-value ratio or LTV). The remaining 10% to 20% of the property value which has to be paid by the borrower is known as down payment. This has to be paid upfront. The bank will initiate disbursal of funds once the proof of this payment has been sent to them.
In the case of education loans, the bank may allow you to pay the margin (percentage of the total education cost) depending on the schedule of disbursals. Check with your lender about the margin requirement and payment conditions when applying for the loan.
4. Interest & EMIs begin immediately
Interest accrual and EMI payments on a loan start immediately after its disbursal. However, in case of home and education loans, borrowers get the option of a moratorium period before starting their loan repayments.
If you have applied for a loan, ensure that you provide accurate details, and have the required down payment ready to facilitate timely disbursal of the loan. Remember, banks reserve the right to cancel your sanctioned loan if the details provided by you are incorrect.
The disbursal process begins after you sign the loan agreement and pay the necessary charges. Remember to read your loan agreement carefully and have errors in it rectified before you sign it.
(The author is CEO, Bankbazaar.com)