The disbursement of the personal loan is an important process that converts a loan request into available money for the applicant. It consists of several processes, ranging from document verification to credit checking and approval, followed by fund release. All the processes are arranged in such a way as to help the lender avoid risk and the borrower receive the sanctioned amount hassle-free. With the emergence of online lending portals, the disbursement process is now accelerated and streamlined, shortening the time from loan application to fund transfer. This article explores each step of the personal loan disbursement process, with important considerations and possible problems in between.
What is the Loan Disbursement Process?
The loan disbursement process in banks is the sequence of steps through which a lender releases the approved loan amount to the borrower. It starts with loan sanctioning, followed by documentation verification, signing of the loan agreement, and collateral valuation (if necessary). The lender then conducts KYC checks to avoid fraud and remits funds through bank transfer or a demand draft. Last but not least, the borrower is informed, and a loan account is opened.
Steps in the Personal Loan Disbursement Process
- Submission of Loan Application: The borrower submits a loan application form along with the necessary personal, financial, and employment information.
- Document Verification: The lender checks documents provided, like proof of identity, proof of address, income statements, and bank statements, to determine the borrower’s eligibility.
- Credit Evaluation: The lender analyzes the borrower’s credit rating, payment record, and finances to determine credit worthiness and estimate the risk involved.
- Loan Sanction and Approval: Depending on the credit evaluation, the lender approves the amount of the loan, the rate of interest, and the repayment period, and sends a sanction letter to the borrower.
- Acceptance of Conditions of Loan: The lender reviews the loan offer, accepts the conditions and terms, and signs the loan agreement to initiate the process of disbursement.
Factors Influencing Disbursement Timeline
- Influence of Credit Score: A good credit score is likely to accelerate loan sanctioning because lenders perceive less risk in lending to financially conservative borrowers. On the other hand, a poor credit score can cause extra scrutiny, tending to slow down the disbursal process.
- Efficiency of bank processing: Banks with efficient processing and verification systems are able to disburse loans quickly. However, internal bottlenecks, system failures, or large volumes of applications may cause delays.
- Accuracy of Application Details: Inaccurate or incomplete application details can lead to verification delays. Getting all documents correctly and timely submitted can minimize processing time quite a lot.
Disbursement Methods
- Lump Sum Disbursement: The entire loan amount is released at once to the borrower, typically used for personal loans, car loans, and unsecured loans. This approach delivers instant access to the entire loan amount but demands that the borrower exercise discipline over funds.
- Partial Disbursement: Part of the loan is disbursed in segments depending on certain milestones or borrower requirements. This is used in construction loans or student loans, where payment is made as the expenses are incurred.
- Stage-wise Disbursement: The loan is disbursed in various stages, usually corresponding to the completion of certain project phases. It is commonly used in house construction loans, where the funds are disbursed upon progress in terms of foundation completion, roofing, and final inspection.
Post-Approval Procedures
- Credit of the Loan Amount: After approval of a loan, the lender credits the disbursed amount to the borrower’s pre-declared bank account. This process could include confirming the account details, establishing payment schedules, and meeting the regulatory requirements.
- Receiving Confirmation and Documentation: Borrowers get a confirmation of the loan release and accompanying vital documentation, such as the loan contract, repayment schedule, interest rate information, and relevant terms and conditions.
Role of Technology in the Loan Disbursement Process
- Digital Application Platforms: Advanced loan management systems enable borrowers to apply, track, and manage loans digitally, reducing paperwork and streamlining the entire disbursement process.
- Faster and More Efficient Online Services: Online channels enable quicker processing and disbursement of loans, with the funds transferred to the account of the borrower instantly and safely, usually within a matter of hours upon approval.
Tips for a Smooth Loan Disbursement Process
- Provide Proper Documentation: Check all documents submitted for accuracy and completeness to avoid a delay in the verification process.
- Understand and Accept Terms in Time: Carefully read through the loan agreement, clarify uncertainties, and sign the documents in a timely manner to ensure speedy disbursement.
- Stay Updated on Processing Timelines: Monitor the loan processing timeline, such as verification, approval, and fund disbursement, to prepare for and overcome possible delays.
Conclusion
The loan disbursement process of the personal loan is more than a mere culmination of accessing funds — it is an extensive process that guarantees both lender risk management and borrowing suitability. Through knowledge of every step, starting from documentation and verification to fund transfer, the borrowers can proceed through the process with more confidence and eliminate unnecessary delays.
Deepvue offers a strong set of APIs that can also significantly enhance the practice of disbursing personal loans, making it efficient, compliant, and customer-satisfying.
- Bank Account Verification API: Ensure that the provided bank account details are valid and active, reducing the chances of incorrect disbursements.
- Bank Statement Analysis API: Automatically extract and analyze bank statement transactional data to evaluate income, expenses, and spending patterns.
- Equifax Credit Report API: Retrieve comprehensive credit reports to analyze the creditworthiness of the borrower and ascertain loan eligibility.
- Account Aggregator API: Simplify the process of fund transfer by accessing and checking multiple accounts of a bank with a user agreement.
FAQs
How long does the disbursement process take?
The process of disbursal usually runs between a few hours and a few days, depending on the verification process of the lender and the completeness of documents.
What are disbursement procedures?
Disbursement procedures involve cross-checking documents, sanctioning the loan, authenticating bank information, and crediting the sanctioned amount of the loan into the account of the borrower.
What is a loan sanction letter?
A sanction letter is a formal letter issued by the lender stating that a loan has been approved, mentioning the terms, amount, interest rate, and repayment period.
What is the significance of a sanction letter in the bank loan procedure?
The sanction letter also acts as a binding agreement, specifying loan terms and serving as evidence of the lender’s intention to release the amount.
What is the disbursement process for personal loans?
It is the process of the steps, from document validation and loan sanction to fund transfer, that completes a personal loan and disburses the amount to the borrower.
