What's Better for Home Loan: Bank or NBFC?

Most of us opt for a home loan when we dream of buying a new space. It starts with choosing the ideal location, buying a plot, and then deciding on the architecture. The amount for getting a home loan depends on multiple factors. However, we do get the flexibility to apply for a loan of up to INR 5 crore* too.

When applying for a home loan, it is best to find the best lending institution with favourable interest rates and features. As a borrower, one must have the flexibility to choose the right lending institution for us where we can control the external outcome related to the loan.

Ideally, the discussion of an NBFC vs a bank is quite common to analyse the best money-saving offer for a home loan. Keep reading this post to know how to reach out to them when looking for a home loan.

Non-Banking Financial Company Vs Bank - Introduction

Generally, borrowers reach out to banks to avail of home loans at a low interest rate. This gives an idea of the interest rates that are subjected in front of us to make a wise choice.

However, NBFCs work on internal principles that aim to offer better interest rates and offer higher flexibility in providing home loans to individuals.

What Are Non-Banking Financial Companies?

Non-Banking Financial Companies, or NBFCs, are financial lending institutions that have planned and have similar banking-related services like offering loans, and credit facilities.

Pros & Cons of Home Loan From NBFC

Here are the pros and cons of opting for an NBFC home loan:

Benefits of A NBFC Home Loan

• The rate of processing funds is higher in NBFCs as compared to banks due to a less hectic eligibility process. The approval and disbursal process in NBFCs is a lot quicker and smoother.
• Borrowers with low credit scores are usually not entertained by banks, and have higher chances to be rejected. However, such borrowers can get loans from NBFCs subject to a higher interest rate.
• The topmost NBFC benefits are that they require a minimum waiting time for fund disbursement along with superior customer service.
• Since NBFCs have more leeway as compared to banks’ stringent processes, there are minimum rules and regulations to follow, which makes opting for loans comparatively easier.
• NBFCs offer competitive interest rates as compared to banks.

Drawbacks of NBFC Home Loan

• NBFCs that have valid licences and certificates can accept deposits, whereas the ones without them can’t.
• Since NBFC isn’t a part of the payment and settlement system, it can’t draw cheques on itself.
• There is no deposit insurance facility.

What are Banks?

A bank is a financial institution with valid licensing and certifications to accept savings, deposits, and drafts to conduct loans. Banks also help with IRAs, safe deposit lockers, and currency exchange.

Here are the pros and cons of opting for a home loan from a bank:

Benefits of Home Loans From Banks

The benefits of banks concerning offering home loans are:

• Since banks abide by the Marginal Cost of Funds Based Lending Rates, which is directly under RBI’s control, it is mandatory to link all home loans to marginal costs.
• The overdraft facility at banks allows borrowers to deposit the home loan amount, which they can withdraw depending on their usage.

Drawbacks of Home Loans From Banks

• The documentation process in banks is extremely exhausting. For a home loan to sanction, it takes a long time.
• When opting for a home loan through banks, high additional charges and fees are imposed over the loan amount.
• Home loan applications are rejected if the CIBIL score isn’t up to the mark.

Differences Between A Bank And An NBFC

Below are the primary differences between banks & NBFCs:

• Interest Rates: The interest rates in banks are regulated directly by RBI. Thus, a fluctuation in RBI’s repo rate causes an impact on the interest rates. However, an NBFC decides the interest rates for its home loan offerings. However, the interest rates are also influenced by the prevailing market conditions.
  
• CIBIL Score: If the credit score is less than 750, the bank will reject the home loan application. The NBFC home loan interest rate can go up if the credit score is low, but they will not reject the home loan application altogether unless unavoidable.
  
• Terms and Conditions: Banks follow strict guidelines of terms and conditions, while NBFCs are relaxed and flexible with their terms and conditions.
  
• Eligibility Criteria: The eligibility criteria in banks are stricter as compared to NBFCs.
• Processing Time: The time taken to disburse the home loan amount is higher than usual for banks. NBFCs disburse the funds within 72 hours* after approval.

Conclusion

Determining your stance in the discussion of NBFCs vs banks looks clear - if you are someone who wants to enjoy affordable regulations, easy loan obtainment, and comfortable repayment tenures, you must choose an NBFC.

SMFG Grihashakti is one of the best NBFCs for home loans that helps borrowers looking to opt for loans have an open option to apply for home loans with the best money-saving benefits.

SMFG Grihashakti has attractive home loan interest rates and offers flexible repayment tenure. Additionally, the benefits offered by SMFG Grihashakti stand out amongst most NBFCs due to our easy-to-go solutions. Applying for a home loan with SMFG Grihashakti will let you borrow up to INR 5 crore too.