Rajan Mehta, an employee with a prominent MNC, was seeking a home loan and applied through an online marketing portal to avoid the process of multiple visits to the bank and save time. Within a few minutes of answering some basic questions about his financial details, he received an online loan approval. Mr. Mehta was delighted by the speedy approval of his loan. Soon after, he was referred to a bank executive to collect and check his documents. After scrutiny, the bank rejected his loan application, and Mehta had to restart the entire process of applying for a loan elsewhere. Mehta’s delight was short-lived, and he realized that the online sanction letter he received earlier had no real value.
It seems easy to apply for loans through online marketing portals, as all you have to do is answer a few basic questions regarding your present job profile, income, age and current residential status. When all the details are given, the online portal generates an online approval for your loan. Most applicants fall prey to this as they mistake it for the final sanction letter given by a financial institution. In fact, the online sanction letter clearly states the phrase ‘This is not a sanction letter’, but many prospective borrowers miss this statement completely and assume their loan has been sanctioned only to be disappointed later.
A sanction letter is a proof that an applicant is eligible for a specific loan amount post proper scrutiny by the financial institution of all original documents submitted by the applicant. It is important for prospective borrowers to not confuse an online sanction letter with a final sanction letter. In an online sanction letter, the following details will be clearly mentioned:
Subject to all positive verifications
Subject to satisfactory credit score
Subject to submission of your financial & KYC documents, duly verified by bank officer
This approval is not final & scrutiny of all information submitted here online will be verified
Please get in touch with our branch for future correspondence
The total amount of loan sanctioned.
The tenure for repayment of the loan.
The type of interest that will be applicable for that loan
The actual rate of interest that is prevailing and applicable at the time of disbursement of the loan.
The base rate at which the interest is being calculated.
The EMI and pre EMI amounts (wherever applicable)
Customers should not get carried away by such online marketing offers. In fact, it is impossible for a bank to sanction a loan without checking important aspects such as your credit history, current income , repayment capacity, other loan obligations, positive residence and employment verification. Moreso, such approval is of no use for you in future if important matters such as the current and anticipated market value of the property, legal validity of the property, approved project plans, etc. is not verified by the lender & they refuse to fund your chosen property later.
For example, you may choose a property in a location which is beyond that particular lender's geographic limit. But another lender may extend the funding to that location too. What will be the use of the online approval if this important aspect is not considered upfront?
Also, if you want to buy an under-construction property which is not funded by certain lenders as the developer may not meet the 'experience' criteria of this one lender, you will have to look for another approval letter from elsewhere and you will have no use of the previous one.
Information banks use to decide on a loan approval and its subsequent sanction is beyond the income you simply feed in the boxes. Moreover, the online letters given by these portals specifically mention that the financial institution will exercise due diligence on the contents stated in the letter before the official loan sanction, but many prospective borrowers turn a blind eye to such details leading to stress and disappointment later.
Online portals can give your very basic information on home loan deals amongst banks, but they do not have the authority to sanction any loan. The best you get is to know an approximation of how much loan you can get if everything else satisfies the specific bank's norms. This will always rest at the discretion of the financial institution. Even complex queries such as stamp charges payable on the loan document, additional Government charges, or specific bank fees specific to your transaction cannot be answered by these online platforms. In this scenario, it is always better to take help of an expert advisor who can support you with your home loan from application to disbursement & beyond.
Always remember that financial processes such as home loan approvals are disciplined and structured. These processes will take a stipulated amount of time due to the steps a financial institution takes in approving you loan, and there is no such thing as an instant sanction letter. These are only marketing gimmicks to grab your attention.
The author Founder & Director, RetailLending.com