How to Read a Loan Sanction Letter Before Signing

What a sanction letter actually contains

Beyond the headline approved amount and tenure, a sanction letter spells out the actual interest rate (and whether it's fixed or floating), processing fees, any other charges, and - importantly - the prepayment/foreclosure terms that apply to your specific loan.

Why prepayment terms deserve a close look

RBI rules prohibit foreclosure or prepayment charges on floating-rate loans to individuals taken for non-business purposes - a meaningful protection if you might want to prepay later. Fixed-rate loans, however, can still carry prepayment charges, as long as they're clearly disclosed upfront in the sanction letter and loan agreement. Confirming which category your loan falls into, before signing, tells you upfront whether early prepayment (see our article on prepayment strategy) will be free or will cost you.

Other terms worth checking before accepting

• The exact processing fee, and whether it's refundable if you don't proceed.
• Whether the rate is genuinely fixed for the full tenure, or a "fixed" rate that resets after an initial period.
• Any mandatory insurance or add-on products bundled into the loan.

(Prepayment-charge rules checked as of September 2026, including the expansion of the floating-rate prepayment-charge ban to individual/MSE business loans sanctioned from 1 January 2026 onward.)

The takeaway

A sanction letter is a real, binding set of terms, not a formality between approval and disbursal - reading it carefully before signing is worth the ten minutes it takes.