NBFC vs Bank - Which is Better for a Personal Loan?
Comparing NBFCs vs. Banks for Personal Loans
A personal loan is a type of unsecured loan offered to an individual for personal use. In most cases, it does require you to submit any collateral and often involves minimum documentation.
However, it is important to choose the right lender to avoid paying a higher rate of interest and for an overall smooth financial process. Read on to know more about the difference between borrowing a personal loan from a bank and a Non-Banking Financial Company (NBFC).
Which is better NBFC or Bank for Personal Loan
Feature | NBFC | Bank |
Interest Rate | Higher | Lower |
Approval Time | Faster | Slower |
Credit Score Required | Flexible | Strict |
Documentation | Minimal | More |
Regulation | RBI (Companies Act) | RBI (Banking Regulation Act) |
Reasons for borrowing a personal loan from an NBFC
The below-listed are some of the reasons for borrowing a personal loan from an NBFC:
- Quick processing: In case you are in urgent need of funds, you can borrow a loan from an NBFC. These institutions generally have a lower loan processing time in comparison to banks.
- Flexibility in eligibility criteria: NBFCs usually have flexible eligibility criteria. In case you have a low credit score and need funds, you can try applying for a loan at an NBFC.
- Customized loan products: NBFCs usually offer tailored solutions for your loan requirements. That is why applying for a loan from an NBFC can be beneficial.
- Higher chances of loan approval: NBFCs generally offer flexibility in terms and conditions of loans, which in turn boosts your chances of getting a loan approved.
- Simpler documentation: NBFCs usually have a simplified loan documentation process as compared to banks.
Reasons for borrowing a personal loan from a bank
The below-listed are some of the reasons for borrowing a personal loan from a bank:
- Competitive rate of interest: Banks usually offer a lower rate of interest as compared to an NBFC.
- Stability and security: If you are looking for a stable rate of interest and security while borrowing a personal loan, then borrowing from a bank may be a perfect choice.
- Digital processing: Most of the banks offer digital processing of personal loans. This makes the loan application process convenient.
- Foreclosure charges: You may be charged less or zero foreclosure charges on pre-closing a loan with a bank than with an NBFC. It is advisable to check this factor when submitting a loan application.
FAQs on Personal Loan from NBFC vs Bank
- Who has a faster procedure for approving a loan?
NBFCs usually have a faster loan approval process as compared to banks.
- Who offers more flexible terms and conditions for a loan?
NBFCs generally offer more flexible terms and conditions for a loan.
- Do NBFCs offer personal loans to applicants having a low credit score?
NBFCs have flexible terms and conditions for loans. Thus, there are high chances of your loan getting approved by an NBFC despite having a low credit score.
- What are the advantages of taking a personal loan from a bank?
The bank provides an array of products other than personal loans. Moreover, they are a stable and secure financial institution, which makes it a perfect choice for taking a personal loan.
- Who has stricter eligibility criteria, NBFCs or banks?
Banks have stricter eligibility criteria as compared to NBFCs.
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