Sanction Letter vs Loan Agreement: What to Compare

A sanction letter tells you what the lender has approved; the loan agreement is what you are legally bound by. Before you sign, put the sanction letter, the Key Facts Statement (KFS) and the draft agreement side by side and check that the amount, interest rate and its type, tenure, EMI, every fee, penal charges and prepayment terms are identical. If any number in the agreement is worse, stop and get it corrected in writing first.

This guide gives you a line-by-line checklist, explains what RBI rules say, and shows how a small mismatch adds up. It reflects RBI's responsible business conduct directions for banks and NBFCs as in force in October 2026; it is general information, not legal advice.

Sanction letter, KFS and loan agreement: what each one is

For home loans there is often a fourth paper, the disbursement request or tripartite agreement with the builder, which our guide on home loan sanction vs disbursement covers.

What RBI rules say

RBI consolidated its lending conduct rules into separate "Responsible Business Conduct" Directions, 2025 for commercial banks and for NBFCs, issued on 28 November 2025. As of October 2026, the main borrower protections are:

• Sanction letter in writing, in your language. The lender must convey the sanctioned amount and terms, including the annualised rate of interest and how it is applied, in writing in a language you understand, and keep your acceptance on record.
• Copy of the agreement and enclosures. Lenders must give all borrowers a copy of the loan agreement and every enclosure quoted in it at sanction or disbursement. RBI calls failing to do so an unfair practice.
• KFS before you sign. For retail and MSME term loans, the KFS must be given before the contract is executed. It carries a unique proposal number and stays valid for at least three working days for loans of seven days or more (one working day for shorter loans).
• No hidden charges. Fees and charges not mentioned in the KFS cannot be charged at any stage of the loan without your explicit consent. Third-party charges collected by the lender, such as insurance or stamp duty, are part of the APR and shown separately.
• Penal charges, not penal interest. Late-payment penalties must be "penal charges", not extra interest added to the rate, must not be capitalised, and must be disclosed upfront in the agreement and KFS. A link to a website is not enough.
• Prepayment charges disclosed. For floating-rate loans to individuals for non-business purposes, no prepayment charges are allowed. Whether any prepayment charge applies must be stated in the sanction letter, agreement and KFS.
• Changes only with notice, and only for the future. Any later change in interest rates or charges must be notified to you and applied prospectively.

If your lender is a cooperative bank or another type of regulated entity, similar fair practice rules apply under its own set of directions; ask the lender which directions it follows.

The line-by-line checklist

Go through this table with a pen. Every "No" is a question to the lender before you sign.

Three items deserve extra attention:

1. Disbursed amount vs sanctioned amount. If ₹5,00,000 is sanctioned but the fee, insurance and GST are deducted upfront, you may receive much less while paying interest on the full ₹5,00,000. The APR in the KFS captures this; compare APRs, not headline rates. Our guide on loan APR and total borrowing cost explains how.
2. Floating-rate wording. Check the spread over the benchmark in the agreement. A spread that differs from the sanction letter changes your rate for the whole tenure. Also check whether the lender can change the spread and on what conditions.
3. Bundled insurance. Many lenders offer credit-linked insurance. Check whether the agreement treats it as compulsory and whether it is already in the KFS. If it is not in the KFS, it cannot be charged without your explicit consent.

Worked example: a "small" mismatch

The sanction letter for a personal loan says ₹5,00,000 at 11% fixed for 60 months, with a processing fee of 1% plus GST. The draft agreement says 11.5% and a processing fee of 2%.

The half-point increase raises the EMI by ₹125 a month, ₹7,505 over the loan, and the doubled fee costs ₹5,900 more. Together that is ₹13,405 for signing without checking. You can reproduce the EMIs on our EMI calculator.

If the documents do not match

Before signing

1. Do not sign "for now". A signed agreement normally prevails over an earlier letter.
2. Write to the lender (email or app) listing each mismatch, with the sanction letter reference and the KFS proposal number.
3. Ask for a corrected agreement, or a revised sanction letter and fresh KFS that you can review before signing.
4. Compare offers. If the lender insists on worse terms, you are free to walk away; a sanction letter does not oblige you to borrow.

After disbursement

1. Check your first statement and repayment schedule against the KFS within the first month.
2. Raise a written complaint with the lender's grievance redressal officer, quoting the KFS and the RBI rule that charges not in the KFS need your explicit consent. Ask for reversal of any excess charge and correction of the rate.
3. Escalate to the RBI Ombudsman at cms.rbi.org.in (helpline 14448) if there is no reply in 30 days or you are not satisfied, within 90 days under the Integrated Ombudsman Scheme, 2026.
4. For digital loans, use the cooling-off period stated in the KFS (decided by the lender's board, minimum one day under the Digital Lending Directions, 2025) to exit by repaying the principal and proportionate APR if the terms are not what you were shown.

What not to do

• Do not sign blank or partly filled pages, or initial pages you have not read.
• Do not accept "the system will correct it later" from a sales agent. Get corrections in writing.
• Do not pay any fee in cash or to a personal UPI ID or account. Pay only to the lender's own account or a regulated channel and get a receipt.
• Do not share OTPs for e-signing or e-mandate with anyone who calls you; complete e-sign yourself on the lender's own app or portal.
• Do not throw away the KFS. It is your strongest evidence if a charge appears later. Keep it with the sanction letter and agreement until the loan is closed and the NOC is in hand; see our loan closure checklist.

Key takeaways

• The sanction letter is the approval; the loan agreement is the binding contract; the KFS is the standard summary with the APR.
• Lenders must give you the KFS before you sign and a copy of the agreement with all enclosures.
• Charges not in the KFS cannot be levied without your explicit consent.
• Check rate type, spread, fees, insurance, penal charges and prepayment terms line by line.
• If anything differs, do not sign; get it corrected in writing, and complain to the grievance officer and then the RBI Ombudsman if needed.