Home Loan From Bank Or From NBFC. What Do I Choose?

 

Home loan segment tops the highest business in the loan industry. If you are looking for a home loan you have two choices. Either apply for a loan through a Bank or with an NBFC. Although it may be a tricky task to choose among the both, yet there are parameters on which you can draw a comparative evaluation such as, the rate of interest, eligibility, processing fees, repayment period, etc. To apply with a lender that provides the best home loan rates is usually the tendency of all home loan borrowers. But since home loan is the longest financial commitment choosing a lender that provides the lowest interest cannot be the only criteria to avail the housing loan. Therefore, given below are the various factors that highlights the differentiated benefits between the both which are vital to help you select the best option for your home loan: -

Difference Between Banks & NBFCs In Availing A Home Loan

 

1) Regulatory Authority

Banks: Are regulated by Reserve Bank Of India.

 

NBFC: Are regulated by the National Housing Bank (NHB).

 

The loans offered by both have distinct features due to the differences in their regulatory authority and their fund sources.

 

2) Fund Sources To Lend A Loan

Banks: Accepts deposits from the customers and utilize such deposits to lend fund as loans.

 

NBFCs: Cannot raise funds through the source of deposits, and therefore they borrow the funds from Banks and FDIs to lend as loans.

 

This is one of the reasons for the higher interest rates with NBFCs.

 

3) Interest Rates

Banks: Interest rates are directly linked to Repo rates of the RBI. The benchmark interest rate for the Banks is set as repo rate plus the spread below which they do not offer to lend funds.

 

NBFCs: Work on the model of PLR i.e., Prime Lending Rates. PLR is an internal benchmark rate used to set up the interest rate on floating loans which is calculated on the basis of average cost of funds. PLR is outside the ambit of RBI. 

 

Banks can’t lend funds below the set benchmark rate while NBFCs are free to set the PLR according to their business requirements because PLR-linked loans do not have such restrictions.

 

4) Overdraft Benefits

Banks: Provide overdraft facility on home loans through special home loan products, also termed as smart home loans or the home loan saver product. In this the home loan is linked to a bank account where your surplus funds can be parked thus helping to reduce the interest liability on the home loan.

 

NBFCs: Do not perform banking activity and therefore cannot offer the overdraft facility.

 

5) CIBIL-Credit Scores

Banks: Has a mandatory requirement of good repayment track record and credit score of 750 and above. You have to follow banks stringent norms of credit score to get home loans at attractive interest rates.

 

NBFCs: Have more relaxed policies for credit scores in comparison to banks and therefore even with the low CIBIL scores you can easily avail a home loan with NBFCs. But such home loans generally come with a higher interest rates and processing charges.

 

The higher the CIBIL score the higher are the chances for getting lower rates & vice-a-versa.

 

6) Home Loan Eligibility Criteria

Banks: Has prescribed norms for your eligibility calculation. Their norms are rigid and stringent. Therefore, sometimes your eligibility goes for a toss on account of strict eligibility norms.

 

NBFCs: Are lenient towards eligibility calculation. They provide you with higher eligibility to match your home loan requirement which is usually compensated by charging higher interest rates and processing charges.

 

7) Funding Against Property

Banks: Are not allowed to fund stamp duty and registration costs of the property.

 

NBFCs: At-times include stamp duty, registration and other associated charges as a part of the property’s market valuation thus increasing the funding on your property.

 

Even though banks are more reliable, but NBFCs offer more flexibility in funding.

 

8) Foreclosure Charges

Banks: As per the RBI guidelines all flexible rate home loans cannot be charged with foreclosure charges. Only with respect to cases with higher risk and fixed interest rates banks may charge you with foreclosure charges which usually ranges between 2% - 3% on the outstanding loan amount.

 

NBFCs: Since not governed by RBI, may not offer you with nil pre and part payment charges. Their foreclosure charges are as high as 3% - 5% on the outstanding loan amount.

 

Conclusion: 

Even though with the current slowdown in the number of NBFCs they still account for almost 40% of the home loan market. This is mainly because they generally cater to niche customers who are not easily serviced by banks. 

 

You can either apply home loan with Bank or NBFC of your choice. Selecting a lender is purely your decision. With whichever way you prefer Loanfasttrack will help you in shortlisting the best home loan as per your requirement.  

 

Loanfasttrack is a Mumbai based loan provider company since 2015 offering loan services in Mumbai on-- housing loan in Mumbai, mortgage loan in Mumbai, personal loan in Mumbai, business Loan in Mumbai, unsecured business loans, home loan transfer, top-up loans and loan transfers.

 

For more information visit us on: www.loanfasttrack.com.