Bank or NBFCs! Which one is best for the Loan and when to shop

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one is best for the Loan

Loan services are offered by banks and NBFCs. Before getting a loan in India, check, compare and evaluate their services. Compare them before you apply for a loan in India to choose the best.

When people need money urgently, they will be scrambling looking for the places that can offer them financial assistance or friends, family members, employer or loan providers. But it is crucial to remember that banks do not provide funds for businesses but rather advances on future earnings.

A person can take loan from Bank or NBFC, but there are few differences between Bank Loans and NBFC Loans. Small knowledge about these distinctions may help you select a better option for your Loan.

Both Banks and NBFCs are financial institutions; this suggests that they provide similar financial products. The two entities have almost same shoes and so when an individual want to get a Loan he /she spend much time thinking whether he/she needs a Bank or an NBFc one. Bankonomics India made a short comparison of the services and products offered by Banks and NBFCs. The aim was to give an all-inclusive idea of their features. This would enable borrowers to make better choices while looking for loans.

Key differences between Banks and NBFCs.

Loans, credit cards, insurances and other financial products and services are provided by both banks as well as non-banking financial companies in India. In India, banks come under the banking companies operated by the RBI while NBFCs come under Companies Act of 1956.

Cheques or drafts are never issued by NBFCs and they do not take deposits too. Each bank and NBFC has its own way of doing things which is a guideline to the manner their different financial products operate. On the other hand, when they mention about banks that allow their account holders to transact money. Banks may also serve as payment channels for their clients’ account settlements as well.

Best choice to approach a loan.

To choose a bank or NBFC for a loan, it’s also important to keep it in your mind that which kind of loan you are looking for. Many NBFCs offer fast loan approval with easy repayment options for their loan applicants. As compare to the NBFCs, Banks have a variety of loan products such as Home Loan, Personal loan, car loan, Business Loan, Education loan and so many other products.

A loan applicant can get the best option for their loan on the basis of following criteria’s:

  • Credit History or CIBIL Score
  • Interest Rate
  • Loan Eligibility Criteria
  • Inflexible Process of Documentation or Paperwork

Credit History or CIBIL score:

A good CIBIL score is the major factor for loan approval. All banks and NBFCs offer loan approval on the basis applicant’s credit history. It also affects the interest rate of Loan. Banks offer the loan to the applicants which have Good credit history whether NBFCs provide some flexibilities in the CIBIL score criteria as compare to the banks; so an applicant with average CIBIL score can also get the loan from the NBFCs.

Interest rates of Loan:

Loan of the bank is based on PLR interest factor. It has a name RBI Mandated lending rates because MCLR is regulated by the RBI.

Non-Banking Financial Companies give loans based on the rate of interest on PLR, which is not regulated by RBI. Therefore NBFCs have some room for manoeuvre on their Interest rates and Credit history as well due to the fact that these are not within the purview of RBI’s regulations regarding Interest rate norms for them. In relation to Banks, NBFCs offer good loan options at lower rates; they also provide credit facilities with higher interest rates to people with impaired credit records than do banks. MCLR should be the minimum interest rate for any loan allowed by Banks.

Loan Eligibility:

Loan Eligibity criteria are different for banks as well as NBFCs. Loan eligibility criteria of NBFCs are quite relaxed as compare to the Banks. NBFCs offer much more according to your eligibility. They offer a loan amount as per your repayment capacity, credit History and other loan factors. On other hand with Banks, the loan eligibility criteria are strict and they don’t grant loan to the applicant with poor credit History. The repayment criteria of banks also differ from the NBFCs.

Inflexible Process of Documentation or Paperwork:

Banks have such inflexible documentation process. Banks should be more careful while granting loans in the age of NPAs (Non Performing Asset). Moreover, NBFCs are customer friendly and have simplified documentation requirements. Many of NBFC offers online documentation process too.

Every loan process and approval has its own pros and cons for both banks and NBFCs. There are two elements that matter upon loan application including: type of loan, CIBIL score, Interest rate of loan etc.

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