While there are a lot of things that a borrower needs to look into when taking a home loan, one of the most important and often complicated decision is to select between banks and NBFCs. In this post, we’ll have a look at 5 reasons that make NBFCs a better option.
The interest rates have fallen considerably in the past few years. For home loan borrowers, this means reduced EMI and ability to borrow a higher amount. But as the borrowers start shortlisting loan providers, most of them often find it difficult to choose between banks and NBFCs.
Increasing number of home loan borrowers in India now prefer NBFCs for the benefits they offer when compared to banks. Let us have a look at five reasons that make NBFCs a great choice for a home loan.
- PLR vs. MCLR
Since 2016, the floating rate loans offered by the banks are linked to MCLR (Marginal Cost of Lending Rate). Banks are not allowed to offer loans at rates lower than this lending benchmark by the RBI. However, NBFCs offer PLR (Prime Lending Rate)-linked loans which are not controlled by the RBI. They can offer home loans at a rate lower than the PLR if required. This allows them to offer more flexibility and options to the borrowers.
- Credit Score Requirement
Banks now lay a major emphasis on the credit score or CIBIL scores of the borrowers. They deny loans to borrowers with poor credit score. But NBFCs are known to have relaxed policies for borrowers who do not have a good credit score. While just like banks, NBFCs too charge a higher interest rate to borrowers with low credit score, they are still a better option if the banks do not accept their loan applications.
- Loan Amount
Apart from the cost of property, a buyer also needs to consider additional expenses like property registration, stamp duty, etc. when buying a home. Banks and NBFCs do not fund these costs. However, NBFCs are allowed to make these expenses a part of the market value of the property. As a result, borrowers get to avail a higher loan amount to pay for such additional expenses which can run into lakhs of rupees.
- Bundling of Products
Many NBFCs and banks offer bundled products. For instance, many of them offer loan insurance along with the home loan. But as compared to banks, NBFCs generally cater to a smaller number of borrowers. Due to this, they have more focus on their profitability from the customers. Because of this, they offer excellent products that have higher chances of being purchased by the customers. NBFC customers get a wider range of products to help them with their home loan.
- Processing and Paperwork
Even when it comes to paperwork requirements, banks are known to be very stringent. NBFCs, on the other hand, have relaxed policies for paperwork and even the loan processing is faster. While home loans in India are time-consuming, NBFCs are an excellent choice for a borrower looking for a faster loan.
A house is probably the biggest purchase of life for most of the people in India. As a result, it is very important to carefully select between the banks and NBFCs after thoroughly understanding the pros and cons of both the types of lending institutions. While banks are still the go-to option for most of the borrowers, the popularity of NBFCs has increased considerably in the past few years. Understand the benefits as mentioned above and know how they can affect your loan to make the right decision.