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  • NBFC Home Loan

    Non-Banking Financial Companies (NBFCs) are financial organisations that provide selected banking services, but are not banks as they do not have a banking licence.

    NBFCs aren’t allowed to accept deposits from the public which eliminates a lot of the banking regulations that traditional banks are required to follow. However, they can provide loans, underwriting services, credit facilities, etc. NBFCs also provide home loans that can be used to purchase, expand, or renovate a plot or house.

    List of NBFCs in India that provide Home Loans

    • Reliance Capital – Reliance capital is India’s most prominent NBFC for home loans. Established in 1986, the company now has an extensive network and also is one of the best NBFCs that provide housing loans.
    • L&T Finance – Yet another major player in the market, L&T finance also offers a wide range of services that include home loans. This company has offered monetary administration to more than 10 lakh individuals.
    • Mahindra and Mahindra Financial Services Limited – Also referred to simply as MMFSL, they have more than 1,000 branches across the country and provide a wide range of monetary services. This organization has two subsidiaries, one of which is Mahindra Rural Housing Finance Limited, which specializes in home loans.
    • Sundaram Home Finance Limited –Sundaram Home Finance Limited was established in 1954 and offers various financial services like housing loans, auto loans, etc. This NBFC has over 1 lakh clients and over 550 branches nation-wide.
    • LIC Housing Finance Limited – This NBFC is one of the more popular financial organization in the country. Its impeccable customer service coupled with great financial products makes it the go-to organization for financial services. LIC Housing Finance also has great housing loan products.
    • Indiabulls Housing Finance Limited – Also a popular option amongst home loan customers, this NBFC is also one of the major fund organization in the country. The company offers mortgages at very competitive rates which has helped them build the large customer base they have today.
    • Power Finance Corporation Limited – This is a NBFC that provides budgetary support to various organizations in the country. Apart from simply providing budgetary support, Power Finance Corporation limited also provides home loans at economical rates.
    • HDFC – Having more than 300 outlets across the country, HDFC was a pioneer in providing housing loans across the nation. It’s wide range of network, outstanding customer service, and the mere history it has with lending, makes HDFC one of the top NBFCs in the country for housing loans.
    • Muthoot Homefin – Muthoot is yet another popular option for home loan customers. Their competitive pricing on home loans and transparency in their policies have made it a reliable and prevalent option for customers looking to avail a housing loan. The NBFC also has a wide network across the country making it easier for individual to access the organisation.

    Advantages of Obtaining a Home Loan with a NBFC

    • 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.
    • 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.
    • 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.
    • 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.
    • 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.
    • 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.
    • 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

    Feature NBFC Bank
    Services offered Chiefly loans All banking services
    Regulations Regulated by companies act Regulated by RBI banking act
    NEFT prepayment Usually accepts only cheque payments Available at most banks for all customers
    Interest rate calculation RPLR – Spread Base rate + Margin
    Overdraft facility Not available Available in some banks
    Interest rate Depends on the property, applicant, etc. It is usually a fixed range of interest rate for all applicants
    Loan approval process Comparatively stricter Comparatively easier
    Disbursement time Faster Slower

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

    • 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.
    • 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.
    • 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.
    • 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.
    • 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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