Understanding Key Differences Between Sanction and Disbursement
In the process of applying for a loan, borrowers usually familiarise themselves with the terms such as “sanction” and “disbursement.” These terms may look very alike and nearly identical. However, they are completely different, referring to two distinct stages of the whole process. Understanding loan sanction vs disbursement is necessary for conducting credit transactions with clarity and confidence. Read this blog to understand what loan sanction and disbursement is.
Loan Sanction: What Does It Mean?
To understand sanctions meaning, assume you need a car loan. For this, you are supposed to qualify for the first critical stage – bank approval. This step is called a loan sanction. When your preferred lender approves your application and officially confirms, at that time, your loan is called “sanctioned.”
This approval depends on various significant things such as:
- Your credit score
- Employment history
- Loan Purpose
- Income stability
Loan Disbursement: What Does It Mean?
Loan disbursement refers to the step when actual money release or transfer happens to the candidate’s account adhering to the terms and conditions confirmed at the time of loan approval. For example, suppose a person has taken out a car loan. When the determined amount will go directly to his account, this is called loan disbursement. It requires the necessary documents with your signature and completion of the requirements mentioned in the sanctioned letter.
Prime Differences Between Car Loan Sanction and Disbursement:
After defining both terms in easy-to-understand language, let us unlock the prime differences between loan sanction and disbursement:
- Timing: The key difference between a loan sanction and disbursement lies in the timings of these two processes. When a person qualifies for a loan, it is called a loan sanction. It means this process happens at the initial stage. Whereas loan disbursement means when the lender transfers the approved amount to the borrower’s account.
- Conditional Approval: A loan sanction is a conditional approval, which means the financial institution must approve the loan after requirements are met. Candidate needs to submit necessary documents, complete legal formalities and adhere to terms and conditions. On the contrary, disbursement does not need any approval. It is a process where the actual amount gets transferred after the loan gets sanctioned.
- Legal Obligations: A sanction is a legal commitment between the candidate and the financial institution. On the other hand, disbursement is the beginning of the loan repayment obligation, as the loan recipient starts repaying the amount along with interest from the time of disbursement.
- Documentation and Compliance: Both processes require complete documentation and adherence to legal and regulatory standards. However, when lenders disburse approved amounts, they conduct additional scrutiny to make sure the money is used for the intended purpose and complies with the loan agreement terms.
In short, sanction and disbursement are two significant stages in the loan process. They serve different purposes and have distinct implications for loan recipients.
Why Understanding the Difference of Two Terms Matters?
Having a clear idea of what sanctions and disbursement are in the process of taking a loan helps avoid probable misunderstandings. For example,
A sanctioned loan doesn’t ensure the borrower will receive money immediately. Delay can happen if the recipient does not fulfil all the prerequisites for disbursement. So, it is helpful to understand these two terms before applying for a car loan. It not only helps you plan better but also eliminates unnecessary stress from the process.
Read More: Commercial Vehicle Loan @ Attractive Rates
What to Know Before Applying for a Loan?
Before starting to search for the right car loan for yourself, there are a few key points a buyer needs to be aware of:
1. Car Loan Interest Rate: If you check the interest rate and calculate the amount beforehand, it will make the repayment process smooth. You won’t exceed your monthly budget and ensure timely repayment. So, calculate your loan instalments using an EMI calculator.
Read More: Car Loan Interest Rate
2. Loan Eligibility: By knowing the eligibility criteria for your car loan, you can have a clear concept of the process. It not only avoids financial difficulties that can arise in future but also enables you to plan the budget effectively.
3. Credit Score: A higher credit score means getting a car loan at an attractive interest rate. So, check it before applying for a car loan. If it is low, take action to improve your score. Once you successfully reduce your score and position it at a reasonable level, you can apply for a car loan.
Read More: Tips to Get a Used Vehicle Loan with a Low Credit Score
4. Application Process: A complicated loan application process can lead to delays, more documentation, and a higher chance of mistakes. It becomes challenging for car buyers to get approval quickly. So, look for banks or financial bodies that offer hassle-free loan application processes and promote quick approval.
5. Tenures: Longer loan tenure means lower EMIs. But remember, you have to end up paying more interest on your principal amount. So, it is better to opt for a shorter tenure and pay higher EMIs for your dream car. Financial institutions like Kogta Financial offer tenures of up to 60 months and loans of up to 95% on asset value.
Read More: Step-by-Step Guide to Get a Used Car Loan in India
Conclusion
Loan sanction and disbursement are two main aspects of the process: approval and execution. Both are necessary and require careful attention to avoid surprises, delays, or loan-related issues. Consider connecting with trustworthy financial institutions like Kogta Financial for a car loan and ensure hassle hassle-free process.
