Home loans are long term financial commitments that can span up to decades. Therefore, you must do adequate research on different housing loans to find the one suitable for you. While the home loan interest rate should be a vital determinant of your choice, you must also consider the services offered by a lender and the convenience of dealing with them. To do so, you might have to make one crucial choice – bank vs NBFCs. It could get confusing to pick one of the two. Though they may seem similar on the surface, there are differences between them, which affects your overall home loan experience.
If you are planning to avail a home loan, here is a small guide on banks vs NBFCs to help you make the right decision.
Banks
Banks in India are regulated by Reserve bank of India. Here are the advantages of availing a housing loan with a bank.
- Overdraft facility
Banks provide you with an overdraft facility on a home loan. Your home loan is linked to a bank account where you can park your surplus funds. The funds over and above the EMI amount are considered as prepayment, reducing your interest outgo and total borrowing cost.
- Transfer of interest rate changes
RBI has made it mandatory for the banks to follow the marginal cost of funds based lending rate (MCLR) regime for home loan interest rates. With this regime, banks usually transfer the change in interest rates faster to the borrowers.
However, the stringent home loan process and documentation of banks often leads to delay in home loan approval and disbursal for borrowers. Also, if you have a low credit score, you might not be able to avail a home loan with a bank.
NBFCs
National Housing Bank (NHB) governs non-banking financial companies or housing finance companies. NBFCs have to procure certificates from NHB to lend home loans.
- Higher loan amount
Based on your eligibility, NBFCs usually sanction a higher loan amount. In addition, they include stamp duty and registration charges of the property in the home loan amount.
- Easier processing
With a relaxed home loan process, you can get a home loan with an NBFC quickly. You might also get a home loan with a lower credit score from an NBFC. NBFCs also have a lesser documentation process. So, if you are unable to get a loan from a bank due to its stringent process, NBFCs can be of great help.
However, keep in mind that NBFCs usually charge higher interest rates.
Summary
Amidst the plethora of options available, it is better to weigh the features of the bank and NBFC while making the decision. While with NBFCs, you might get a higher loan amount, they usually charge higher interest rates. On the other hand, banks have a complicated documentation process and require a high credit score. Therefore, it would be best to assess your needs and then make a decision. If you have a low credit score but are in search of a high loan value, you can opt for a loan from NBFCs. However, if you wish to have an overdraft facility and low interest rates, banks could be a better option for a home loan.
