Before we could apply for a home loan – so many questions pop into our heads. One of them is if we have to choose between a bank or a Non-banking financial company. When you plan to buy a house with a loan, there are mostly two options for you. You can either choose a bank or a loan from a non-banking financial company. Lately, the popularity of non-banking financial companies has gone up, and people don’t just look at banks for their financial needs. But traditionally, we have always relied on banks, and NBFCs are more recent. But it’s always a good thing to know both your sources of financial help and which one you can rely on based on your journey for a home loan.
What is the Difference Between Banks and NBFCs?
Here are some of the primary distinctions between a bank and an NBFC:
- Banks are registered under the RBI banking Act and NBFCs under the companies Act.
- Banks accept and lend deposits while NBFCs don’t.
- Banks need to manage a Cash Reserve Ratio and a percentage of funds with the Reserve Bank of India, but the NBFCs do not have to do the same.
Given all of these differences, there is one most important difference that will be of great interest to you, the difference in the interest rates.
There is a Difference in the Interest Rate
The interest rate is one of the most important factors. Don’t you think? You could be paying twice as much of the principal in some cases and much lower if you just researched more.
Banks turn out to be directly linked to the Reserve Bank of India, and they give home loans with interest rates that are based on the Marginal Cost of Lending Rate. This Marginal Cost of Lending Rate means when the MCLR changes, the interest rate also changes. It could either go up or come low. Still, banks follow transparency in this process and mention time intervals at which rate the interest can change
Contradicting to that – there are NBFCs. With NBFCs, the purview of the RBI offers their interest rates at Prime Lending Rates, so, when you have a good credit score, you can negotiate with the lender to sanction the loan at nominal interest rates.
For instance, you could use the SBI Bridge housing loan calculator and the Bajaj Finance Home Loan Calculator, and check how the two of the interest rates vary. They wouldn’t be the same, and nor will some of their terms and conditions.
Though both of the sources have their own ways of operating and lending money, they both have their set of advantages. You would want to know how each of them will benefit you. This will help you conclude from where you need to take a home loan.
What are the Benefits of Taking a Home Loan from an NBFC
It is Processed Faster: A bank typically takes a lot more time to process a house loan. But that’s not the case with NBFCs. NBFCs process loans much faster than Banks do.
There is lesser Documentation: NBFCs also need fewer documents for a home loan when they are compared to banks, and this means there is a bigger chance of getting approved.
It’s a little less strict: Banks are more stringent to approval, but on the other hand, NBFCs are less stringent in approving loans.
There is faster disbursal: The points earlier say that it will be disbursed faster, and it means you do not have to wait for months of getting the loan.
They have competitive interest rates: Because of the immense competition in the home loans industry, they are focused on keeping interest rates low. It doesn’t just mean that the payable interest will be low, but it does also reduce the burden on the EMI. In a lot of cases, the interest rate of an NBFC is lower than that of a bank.
It’s accessible even with a lower credit: As it was already said, banks are more stringent. It’s quite true when considered with the credit score. A bank provides house loans to individuals that have a very good credit score. However, that is not the case with NBFCs, but the interest rate is higher for applicants with a lower credit score.
There are lesser rules: They aren’t banks and have lesser rules and regulations to follow when compared to banks. It makes their homes more accessible to borrowers, and it is easily approved. Though you still need to understand that the loan amount will be lesser than a bank.
What are the Benefits of Taking a Home Loan from a Bank?
There are tax benefits: In order to encourage more people to buy houses, the government provides tax benefits on the principal, as well as, the interest paid on a home loan.
The stringent process can benefit you: As already said, a bank can be very stringent before approving your project, and that analyzes the value of everything else in your plan.
You won’t be charged for prepayment: When you prepay your loan amount – a lot of NBFCs charge you. You would not be charged in the case of a bank.
So, we are at the end of this piece now. Put your needs against these benefits and find the one that suits you the most.
Whether bank or NBFCs, they both have their set of pros and cons. But, if you are in a hurry to get approved, there is no better option than opting for an NBFC.