The main financial intermediaries for home loans are NBFCs and Banks and both provide customers with nearly identical services. As finance is a fundamental need for all people, businesses, and enterprises, NBFC entered both the public and private sectors to complement banks in serving as a source of financing for individuals. Even if both work similarly, they still have differences. Here is the comparison between Home Loan NBFC vs Banks.
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About Home Loan From NBFC
NBFC means Non-Banking Financial Companies, which are governed by the Reserve Bank of India as per the 1994 RBI Act.
NBFC Registration is required before any NBFCs can begin their operations.
Although NBFCs are not bank institutions, they engage in lending and certain other operations including offering home loans and advances, credit facilities, investment and savings products, money market trading, managing stock portfolios, money transfers, etc.
Hire purchase, leasing, infrastructure financing, venture capital financing, home financing, etc. are all NBFC businesses.
Deposits can be taken by NBFC, but only fixed deposits and deposits that are repayable immediately are accepted by NBFC.
Due to its Tax laws and regulations, an NBFC accepts you with arms open when a bank declines to grant you a house loan.
About Home Loans From Banks
When you dream about buying a home banks are the one who helps in fulfilling that dream. Banks are one of the traditional choices for applying for a Housing loan.
Banks are financial institutions that have been permitted by the government to carry out banking operations like taking deposits, extending credit, controlling disbursements, paying interest, clearing checks, and offering consumers a variety of basic utility services.
Banks are regarded as the primary institution that controls the nation’s whole financial system. The country’s economy runs smoothly thanks to the banks.
The banks can be public sector or private sector banks, or foreign banks, and they’re in charge of extending credit, raising deposits, transferring money in a secure and timely manner, and offering public essential facilities.
How is NBFC Different From Banks
The government has approved banks as financial intermediaries with the responsibility of offering banking facilities to the common public.
NBFCs, on the other hand, offer banking services to customers without possessing a banking license.
The demand-repayable deposits cannot be accepted by an NBFC whereas Banks accept DD.
The maintenance of reserve ratios like SLR or CRR is required by banks. In contrast, NBFCs are exempt from the requirement to hold reserve ratios.
Why are NBFCs Better Than Banks?
Foreign investments are permitted in NBFC up to 100%. However, the maximum amount of Foreign investment that can be made in Private sector banks is 74%.
The documentation process takes less time at NBFCs compared to banks. Home loan is authorised swiftly, and the payout is likewise speedy, due to the NBFCs’ lax laws and regulations and the short documents required.
Advantages and Disadvantages of Home Loan from NBFC
Home loan from NBFC provide benefits to borrowers as well it has some downsides too. Here are the advantages and disadvantages of home loans from NBFC.
Advantages of Home Loans from NBFC
- NBFC provide relaxation Relating To Credit Scores.
- NBFCs will grant you a mortgage loan if your overall credit score is under 700. In contrast, an NBFC may impose a greater interest rate if your credit score is low, but it may be your only choice if you are in a dire position.
- An NBFC has an easy and rapid documentation procedure.
- NBFCs require less paperwork and have a quick approval process, making it possible for you to quickly apply for a house loan.
- As the home loan documentation process is quick which makes the payments disbursement process fast.
Disadvantages of Home Loans from NBFC
- The interest rates offered by NBFCs are usually higher as compared to banks.
- NBFCs do not offer an overdraft facility, in contrast to banks.
- NBFCs are not allowed to issue checks drawn on themselves because they are not a part of the system for payment and settlement.
Advantages and Disadvantages of Home Loans from Banks
Banks are always the first financial institutions that come to mind when people think of getting home loans. As it is beneficial for money borrowers it also has some limitations. Here are the advantages and disadvantages of Home loans from Banks.
Advantages of Home Loans from Banks
- Favourable Interest Rates are offered by banks.
- If a person’s credit score is low, then they will not be approved for a bank loan for a home. However, if your credit score is acceptable (700 or higher), you may be eligible for a house loan with a tempting interest rate ranging from 6.5% per annum.
- Banks provide overdraft services. An overdraft option is a type of credit that a bank extends to a customer.
- The borrower of a mortgage can deposit money above the loan’s limit and withdraw money as needed. Your house loan can be repaid by depositing funds into an overdraft-protected account that the bank creates for you. An extra deposit is seen as a settlement of your mortgage and lowers the principal balance and rate of interest.
- You can get a house loan from a bank for up to 90% of the worth of your home.
Disadvantages of Home Loans from Banks
- Banking Institutions adhere to a strict and Protracted Documentation Process as a result, disbursement of the mortgage is very slow.
- A good CIBIL Score is Required to get a Home loan from banks. These Institutions will not accept your house loan application if you possess a poor credit score under 700.
- There are Additional Fees and Charges applicable with the Home loan.
- Additionally, the bank is unwilling to include basic fees like stamp duty within the amount of the home loan.
List of Top NBFCs and Banks in India to Apply for a Home Loan
Here is the list of top NBFCs and Banks in India to apply for a Home Loan.
Also, Read the Comparison Between HDFC Vs SBI Bank Home Loan article.
FAQs
| Which home loan is better NBFC or bank?
It is always recommended to request a house loan with a bank if you have a good credit score & meet their eligibility requirements because of the cheaper interest rate and additional perks it provides. |
| Is it good to take a loan from NBFC?
NBFCs have lenient policies but higher interest rates |
| Will NBFCs check Cibil scores?
Yes NBFC checks the Cibil score before approving a loan application. |
| How much loan can an NBFC give?
9.9% to 36% p.a. in favourable interest rates are offered on NBFC loans. You can obtain a loan from an NBFC in India for a sum ranging from Rs. 50,000 – Rs. 50 lakhs, with a flexible repayment period of 10 months – 7 years. |
