NBFC or Bank: Which is Better for a Home Loan?
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NBFC or Bank: Which is Better for a Home Loan?

  • Highlights

  • NBFCs & banks have set criteria for home loan sanctions

  • Interest rates on bank home loans are linked to RBI

  • Flexible loan terms & application ease sets NBFCs ahead

  • Check your eligibility in advance to get an affordable loan

Since 2015, the credit share for NBFCs has been on a rise, showing a growth from 10% to 13%. Owing to this trend, it is obvious that you will have come across numerous NBFCs alongside reputed banks while doing your research for the right lender to take a home loan from. While home loan interest rates play a determining role in which financial institution you choose, look at the various factors that set NBFCs and banks apart.

Differences in interest rate

Banks function strictly and directly under the regulation of the Reserve Bank of India, while NBFCs are created under the Companies’ Act, 1956. This basic difference has a direct implication in terms of the interest offering for loans that banks and NBFCs sanction. This allows banks to usually apply floating interest on your home loan, the rates for which are directly linked to MCLR. The rates in this case increase or decrease based on RBI policy changes, which are driven by economic factors.

On the other hand, NBFCs fix the interest rates on home loans as per Prime Lending Rate, which is not linked to the RBI. Here you can negotiate with the lender to get a high amount sanctioned at a nominal rate of interest as the lender has the power to decide the interest with greater flexibility. This however depends on you fulfilling all the required eligibility criteria and having a good credit score.

Six Things to Remember Before Taking a Home Loan

Differences in flexibility of terms

NBFCs sometimes have an edge over the banks in terms of the convenience they offer on your loan terms. Unlike banks, you can give lengthy paperwork a miss when you are applying for a loan with NBFCs. Also, lenders like Bajaj Finserv allow you to take a Home Loan comfortably by applying for it online, though you may be able to apply online with certain banks too. Apart from the application flexibility, you can avail a sanction of up to Rs.10 crore for a tenor of 25 years within 72 hours of your application with renowned NBFCs. Lastly, NBFCs may offer you a Flexi Hybrid Home Loan, which allows you to pay interest-only EMIs in the first few years of your repayment tenor. This allows you to buy a home earlier than you had imagined by decreasing your financial obligation. You can then pay full EMIs once your salary has increased, and you can afford to do so without hassle.

Differences in eligibility criteria

Your repayment capacity, credit score, income, the city you live and work, and the valuation of the home you intend to buy are the parameters on which your home loan approval rests. These are the deciding factors for both banks and NBFCs. However, each financial institution has their own home loan eligibility criteria. For example, you can check the eligibility parameters for Bajaj Finserv’s Home Loan by using the Home Loan Eligibility Calculator. You’ll see that the simple criteria are a hallmark of NBFCs, which allows you to apply with ease. This may not be true of banks. For example, with a low credit score, you may not qualify for a home loan with banks, but may be able to apply with a NBFC, albeit at a higher than normal interest rate.

Differences in processing time

Both banks and NBFCs are very thorough with their loan processing steps, which also involves stringent verifications. However, along with online application facilities where you can even upload scanned copy of all the required documents, the processing time for NBFCs are usually lower than banks. Generally, you can get a sanction within 72 hours of your application in case of an NBFC. This allows you to book your dream home without delay.

Differences in customer services

The entire financial sector is a service-led industry. Both banks and NBFCs function day and night to meet your loan requests. However, when it comes to dedicated customer service NBFCs can sometimes outpace banks. With every home loan sanction, they allow you to keep a tab of all your loan details, payments, and charges using your online account. Added to this, you are assigned a customer relationship manager who attends to all your queries related to the loan to help you manage your loan comfortably through the tenor.

Keeping this information handy, find out about loan terms, related fees and charges, and home loan interest rates apart from benefits like EMI holidays and top-up loans offered by banks and NBFCs before choosing one. Then use an eligibility calculator and a home loan EMI calculator to further estimate whether you qualify, what your probable loan amount will be, and how to plan your repayment.

Bajaj Finserv brings you pre-approved offers for personal loans, home loan, business loans and a host of other financial products. Not only does this simplify the process of availing financing, but also helps you save on time. All you have to do is share a few basic details and check out your pre-approved offer.
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