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Tata Capital > Blog > Personal Use Loan > NBFC vs Banks: For Personal Loans

Personal Use Loan

NBFC vs Banks: For Personal Loans

NBFC vs Banks: For Personal Loans

Whether you need funds quickly to take care of an emergency or you need finances to fund some of your biggest dreams this year, a personal loan can help you out.

Over the years, personal loans have emerged as a popular funding avenue, given they are so easy to obtain and require no collateral. Besides, if you have a good credit score and repayment history, acquiring a personal loan is even easier, no matter which lender you choose.

But with so many lenders available today, who should you choose for a personal loan? Should you get your loan sanctioned from a bank or an NBFC? In this article, we will help you in making an informed decision. 

Read on to discover the differences and benefits of banks and NBFCs, the factors to consider, and how to apply for an NBFC instant loan.

What is NBFC?

Unlike banks that are governed by the Reserve Bank of India (RBI), NBFCs or Non-Banking Financial Corporations are financial institutions that provide banking services without holding a banking licence.

They come under the purview of the Companies Act 2013, meaning their approval processes are simpler than banks, and so are the eligibility criteria. The best part? You can avail of a range of banking services like loans, investment instruments, insurance plans, etc.  

How is NBFC different from a bank?

While both NBFCs and Banks offer banking services, certain aspects help us distinguish between the two:

Demand depositsThey are permitted to receive demand deposits.They are not permitted to get demand deposits.
Physical presenceBanks have a more prominent physical presence, with ATMs and branches spread nationwide.NBFCs have less physical presence and more online presence.
Interest ratesThey offer competitive interest rates.They may provide a higher rate of interest compared to banks. However, you can negotiate lower interest rates, provided you meet the eligibility criteria.
Services providedBanks offer a lot of extra financial services like, transaction services which are not provided by NBFCs.NBFCs offer only a few banking services like loans, insurance, and investment.

Benefits of acquiring a personal loan from NBFC

Applying for a loans from NBFCs has become quite prevalent in this era because of the wide range of benefits these financial institutions have to offer:

1. Eligibility criteria: Applying for NBFC loans is much easier than for traditional banks because of their flexible eligibility criteria. As long as you meet your lender’s credit score specifications and can prove your loan repayment ability, your loans will get approved quickly.

2. CIBIL score: A high CIBIL score is necessary when applying for any loan through traditional banks. However, if you have a stable source of income and a good career portfolio, acquiring an NBFC instant loan is possible even with a slightly lower CIBIL score. That said, check with your NBFC to know their credit score requirements before applying for a loan.

3. Customer service: NBFCs boast a robust customer service culture. The assistance provided during and after loan disbursal has made people prefer NBFCs over traditional banks.

4. Quicker loan disbursals: Banks have to follow the stringent policies of the RBI that govern eligibility and documentation of personal loan applications. But that is not the case with NBFCs. Hence, NBFC personal loans can be acquired through minimal paperwork. Besides, the entire process is online, the verification is quick, and the loans get disbursed quicker.

Benefits of acquiring a personal loan from the bank

1. Interest rates: Banks usually offer interest rates after considering the RBI policy rates and the market sources for their larger target audience. This is why they are often lower than those offered by NBFCs. However, these interest rates can vary depending on the customer profile.

2. Pre-approved loans: Most banks offer pre-approved personal loans to their existing customers. These loans require documents and get sanctioned instantly.

3. Huge network: Owing to the vast banking system of our country, most banks have a massive network of branches. This network helps with better customer reach and solutions to their needs.

4. Financial services: Banks offer a wide range of financial services and are not just limited to loans and insurance. As a customer of a specific bank, you can also avail of their card facilities, deposits, and ATMs. 

What to consider before opting for a personal loan?

Certain factors influence your choice of financial institution. Hence, before securing a personal loan from one of the two options, consider these factors:

1. Credit score: Since a credit score reflects your loan repayment ability, having a higher credit score indicates a lesser chance of loan defaults. This is why a higher credit score allows you to negotiate loan terms. So, before securing a loan, consider whether your current credit score will acquire good loan offers.

2. Repayment flexibility: Lenders know that loan repayments can push borrowers into credit debt in case they do not have the liquid funds to make repayments timely. So, to make the EMI payments easier, certain NBFCs, like Tata Capital,  allow borrowers to choose their loan term. This way, borrowers can choose a loan repayment option according to their financial obligations and repay the loan timely.

Note that only a few lenders offer this facility. So, study repayment plans offered by multiple lenders and choose the best alternative.

3. Foreclosure and pre-payment cost: Certain banks and NBFCs provide the option to foreclose or pre-pay the outstanding loan. Doing so helps save costs that would have otherwise been spent on interest payments, given foreclosure effectively reduces the tenure of your loan. So, check whether your lender provides this option or not. Note some lenders may apply charges on loan foreclosure. So, check these charges before applying for the loan.

4. Additional cost: Before applying for a personal loan, stay crystal clear about all the additional costs that come with the personal loan. Enquire with your lender about fees and hidden charges to avoid discrepancies.

Your next personal loan should be selected with these factors in mind. Doing so will guarantee a better deal for you and help you in future payments and loan closures.

NBFC personal loan apply 

The NBFC personal loan online application process is often more efficient than the traditional banks. With Tata Capital, this process gets simpler than ever:

1. Visit the Personal Loans section on our website

2. Find the application form and fill in the details

3. Enter loan details

4. Enter your personal and financial details

5. Upload documents as required

6. Upon successful verification, your loan will be sanctioned within a few days

To sum up

Banks and NBFCs are both excellent channels to acquire your next personal loan. While banks have a reputation for being trustworthy and offering lower interest, NBFCs provide flexible loan terms, better customer service and quick loan disbursals.

Tata Capital can be your best companion if you want to acquire NBFC personal loan online. Tata Capital offers competitive interest rates, flexible EMI repayment plans, and a hassle-free application process. Apply for a personal loan today! 

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