Policies, Codes & Other Documents
If you are planning to buy a house by taking a home loan, there are two options you can choose from. You can either take a loan from a bank or a Non-Banking Financial Company (NBFC).
The popularity of NBFCs has increased in the last few years, and customers are now more aware of the two options they have. However, choosing between a bank and NBFC can be a tricky task.
Because of their wider reach, most people usually rely on banks over NBFCs when taking a substantial loan for their house. But it would help to be aware of how the two institutions provide finance and the different criteria they follow.
Banks are directly linked to the RBI and offer home loan interest rates based on the Marginal Cost of Lending Rate (MCLR). The MCLR-linked interest rate implies that whenever the MCLR changes, the interest rate will also change. It can either increase or decrease. However, banks follow complete transparency in this procedure and clearly mention the time intervals at which the interest rate can change.
NBFCs, on the other hand, don’t have complete transparency regarding their interest rates. Because they may be higher or lower than lenders, the lack of transparency means that there is a higher risk involved. Thus, to be on the safer side, experts suggest having more money for paying your EMIs or making a loan repayment to offset the risk.
However, a home loan from NBFC can be cheaper as they do not come under the purview of the RBI and offer their interest rates at the Prime Lending Rate (PLR). Thus, if you have a good credit score, you can negotiate with the lender to sanction the loan at a nominal interest rate.
Your age, monthly income, credit score, desired property cost, and other credentials affect the application process. An important point to note is that banks typically have stricter regulations, while NBFCs have more lenient rules. This is also one of the reasons why the popularity of NBFCs is growing. These let consumers get a home loan in a shorter time span.
Banks and NBFCs typically perform verifications and background checks to ensure the applicant will not default on the EMI payments. Applicants are often required to submit documents like income proof, bank statements, identity proof, etc. However, most NBFCs offer a fully digital application process, making it more convenient for borrowers to apply for a loan.
You can scan and upload all the documents from your home. This brings down the processing time, and the loans are disbursed quickly.
As banks come under the RBI regulations, they have a security measure in place that guards up to Rs. 5 lakhs. However, the case is different with NBFCs. While they must follow certain regulations of the RBI, they are not bound by the regulator in the same manner as banks.
This means that there may be some security measures you may not be able to receive under NBFCs. Consumers availing of a home loan should consider this important point as well, should there be any unfortunate incident in the future.
Apart from the loan amount, some lenders do not charge registration and stamp duty costs. A home loan from NBFC can include these costs during the time of a home loan disbursement. These costs may be high for some and affordable for others, but depending on the amount, you can make it a point to have them included in your home loan disbursement itself.
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Policies, Codes & Other Documents