NBFC Home Loan

Advantages of Obtaining a Home Loan with a NBFC

1. Faster Processing - Banks usually take a lot of time to process a housing loan. This is not the case with NBFCs however. It is a fact that Non-Banking Financial Companies process loans faster than banks.
2. Minimal Documentation - NBFCs also require much lesser documentation for home loans when compared to banks. This also means that there is a higher chance of getting you loan request approved.
3. Less Stringent - Banks are usually more stringent when it comes to approving a home loan. NBFCs, however, have a less stringent process when it comes to approving a home loan.

1. Faster Disbursement - All the points mentioned above also results in a faster disbursement of the loan. This means that you don't have wait for months to obtain a home loan. It is generally a much faster process when it comes to NBFCs.
2. Competitive rates of interest - Due to the immense competition in the home loan industry, NBFCs are forced to keep the interest rates low. Not only does it mean that the interest payable will be low, but also reduces the burden on the EMI of the loan as well. In many cases interest rates offered by NBFCs are lower when compared to rates offered by banks.
3. Accessible to individuals with low credit - As mentioned earlier, banks are more stringent when it comes to the procedure of approving a loan. This is true with regard to credit score as well. Banks provide housing loans only to individuals that have an impeccable credit score. NBFCs however are open to the idea to lend money to customers that don not have an excellent credit score. However, it must be noted that the rates of interest would be higher for individuals that have a low credit score.
4. Less rules and regulations - Since they are not banks, NBFCs have lesser regulations to follow when compared to a bank. This makes home loans more accessible to borrowers and the approval process less complex. However, it must be understood that the loan amount disbursed will be lesser than that of a bank. This is so because that the defaults on loan also rises with the minimal regulations put in place for NBFCs.

Are Banks or NBFCs preferred for Home Loans?

What institution is better to obtain a home loan is completely subjective. It varies from person to person. The financial situation of an individual determines where he/she needs to obtain a home loan from. For example, if the individual has an urgency in obtaining a housing loan, it is preferred that he/she approached a Non-Banking financial company for the same. The advantages mentioned earlier in the article shed light on the benefits of a NBFC. Mentioned below are the major difference between banks and NBFCs that shed lights on the features of both of these organisations.

Differences between Banks and NBFC

Important Factors to keep in mind before obtaining a Home Loan from a NBFC

1. Home loans offered by NBFCs are usually linked under the prime lending rate system. But all banks are now mandated to have all loans linked to MCLR (Marginal Cost of funds Based Lending Rate). This is more beneficial to a customer and also provides all customers a similar rate of interest on home loans. However, a prime lending rate system may have higher interest rates and the rates may fluctuate throughout the term of the loan.
2. Banks are also mandated to pass on the benefits of the RBI to customers, whereas NBFCs are not required to do so. NBFCs are free to set their own rates of interest while banks have to reduce their rate of interest in case the RBI does so. On the flipside, banks are not allowed to lend below their MCLR values, but Non-Banking Financial Services are more than welcome to do so. In some cases customers may benefit from lower interest rates as well.
3. Banks have the option of providing an overdraft facility on a loan. The overdraft facility is linked to the borrower's account and can be used if he/she wishes to avail a surplus amount. NBFCs do not have this option.
4. NBFCs are less stringent when it comes to paperwork and other regulations. However, it must be understood that this also means that there is no regulation on the interest rate that a NBFC can offer. They can offer you a rate of interest that is considerably higher than that of a bank. Another point to take note of is the fact that you may still obtain a loan from a NBFC even if you have a low credit score as they are less stringent in the approval process. While banks are comparatively stricter when it comes to approving a loan. Usually customers looking for a home loan with low credit scores get their application rejected by banks.
5. As NBFCs have a smaller customer base, it is more likely that you will get your home loan approved. Non-Banking financial companies will sell you housing loans and other financial products simply to boost their business. However, you must evaluate your repayment capacity before jumping into obtaining a home loan with a NBFC. If you are incapable of repaying, your financial health can decline for quite some time.

Although obtaining a housing loan with a NBFC has its benefits, always do your research, evaluate you repayment capability, and understand the offer at hand before accepting the loan. It may be comparatively easier to attain a home loan from a NBFC, but can be a financial burden if the interest rates obstruct your repayment capacity.

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