Difference between sanction and disbursement

In the process of taking a loan, many usually hear terms such as "sanction" and "disbursement." Though these terms may look very close and almost similar, they actually refer to different stages of the loan process. Distinguishing between sanction and disbursement will better equip you to understand your loan transaction more clearly and confidently.

In this blog, let us understand the difference between sanction and disbursement.

Let's assume you want a loan. The first critical process of this is the bank's nod in approval, and this is called the stage of loan sanction. The moment that the bank or lender assesses your application and formally confirms that they approved your loan, then that is the time when your loan is called "sanctioned."

The approval shall depend on many detailed things such as:

• Your credit score
• Income stability
• Employment history
• Purpose of the loan

Consider loan disbursement as the actual movement of money from the lender into your account, or, depending on the type of loan, sometimes straight to a builder or seller. For instance, consider a home loan that a person has taken. The money will likely go directly to the property developer.

The disbursement process begins only after you sign all the documents and complete the requirements that the sanction letter mentions. Now, this is the stage when your loan will really come to life because it's the stage at which you can have access to the funds to meet your financial goals.

Now that we've defined both terms, let's explore the difference between loan sanction and disbursement in depth:

Approval vs. Transfer

• Loan Sanction: It presents an approval of your loan application.
• Loan Disbursement: It is the release of the amount for which you actually applied.

Conditional vs. Final

• Sanction: The sanction becomes effective by conditions. You have to go through all these terms before disbursement.
• Disbursement: The transfer occurs once all the conditions are met.

For sanction, you have to furnish income proof, identification, and loan application form. This might involve some extra documentation, such as home loans through property sale agreements or personal loans through invoices.

Typically, it is at this stage where the sanction happens. It is after the lender has confirmed your eligibility to receive the loan. Disbursement happens later, after you have agreed on the terms and provided all the required documentation.

Knowing the difference between sanction and disbursement will prevent potential misunderstandings in the loan process. For instance,

A sanctioned loan doesn’t guarantee you’ll immediately receive funds. Delays can occur if you don’t fulfil the lender’s requirements for disbursement. During emergencies, understanding these timelines can help you plan better, avoiding unnecessary stress.

The difference between loan sanction and disbursement refers to two main aspects: approval and execution. Sanction means that your loan application has been approved. Disbursement, on the other hand, is the stage of receiving the funds. Both stages are important and require careful attention in order for the process not to malfunction.

Understanding these differences empowers you to manage loan-related issues better, to ask appropriate questions, and to avoid surprises. The next time you hear these words, you'll know precisely where you stand in your loan journey!

All this would ensure the whole process of borrowing takes place without a glitch, just like a well-arranged choreographed dance, whether it be in terms of buying a home, financing education, or simply managing a financial emergency.

With this guide, the difference between sanction and disbursement should now be crystal clear. If you’re exploring loan options, take your time to fully understand the terms offered during the sanction stage and ensure you’re ready to fulfil the disbursement requirements.