Since 2015, Non-Banking Financial Companies (NBFCs) have made significant contributions to credit growth in the lending industry. As NBFCs continue to grow in popularity amongst many segments, you may want to know whether to go with a bank or an NBFC when it comes to selecting a home loan. Here’s a comparison of various parameters to help you make the best decision regarding a home loan in Dehradun.
1. Rates of interest: Bank interest rates are linked to the Marginal Cost of Funds-based Lending Rate (MCLR). It simply means that banks’ interest rates are linked to an external benchmark, and banks must respond to changes in the MCLR by raising or lowering their interest rates. NBFCs, on the other hand, base their interest rates on the Prime Lending Rate (PLR). NBFCs are free to set their own PLR, giving them greater flexibility in setting rates to meet the needs of their customers. This is why a home loan in Dehradun taken by an NBFC will be different from the one taken from a home loan in Chandigarh.
2. Ease of use: NBFCs place a strong emphasis on convenience and provide a more pleasant customer experience. Dealing with banks, on the other hand, can be time-consuming, especially for busy professionals and businessmen. NBFCs rank highly in terms of convenience, home loan interest rates, doorstep service, quick processing time, and simple eligibility criteria. These elements simplify your overall lending experience and assist you in meeting your housing finance needs without difficulty.
3. Eligibility requirements: Banks have stricter eligibility criteria and consider more factors before granting a home loan than NBFCs. Thus, a home loan in Chandigarh Bank can only be obtained if all of the paperwork is in order and the house is in a well-established and recognised location. For example, a low credit score and/or a few issues with your home location may hinder you from obtaining a loan from a bank. You can, however, obtain a loan from an NBFC at a slightly higher interest rate.
4. Policy relaxation: In comparison to banks, NBFCs have more relaxed policies. It is useful not only during the loan approval process but also during the long loan tenure. When dealing with NBFCs, for example, you can avoid lengthy paperwork. Many NBFCs accept online loan applications and offer complete doorstep service. When it comes to home loan in Chandigarh, dealing with NBFCs is more convenient than dealing with banks.
5. Time required for processing: Banks’ processing time for a home loan in Dehradun or anywhere for that matter for approving and disbursing a home loan in Chandigarh is longer than that of NBFCs. When compared to banks, NBFCs can provide a sanction within 72 hours of your online application, whereas banks can take several weeks.
Aside from the interest rate, convenience is also important.
A home loan in Dehradun or a home loan is a type of loan that can last up to 30 years. As a result, other factors, such as the lender’s convenience, must be considered. It is critical that customers be handheld throughout this journey. Customers will be able to access solutions such as 24×7 support and other information such as interest certificates. NBFCs, including housing finance companies (HFCs), have significantly transformed their delivery models, placing the customer first. Customers’ decisions are frequently skewed towards the interest rate being offered, but a critical aspect they overlook is that interest rates are typically floating in nature and will fluctuate in response to market conditions.
Benefits of Availing of Home Loan from Banks
1. Banks pass on interest rate changes to borrowers more quickly: Banks currently use the RBI-regulated marginal cost of funds-based lending rate (MCLR) model. The RBI has mandated that banks link home loan in Chandigarh to the marginal cost of borrowing across tenures. Banks generally pass on interest rate changes to borrowers faster than NBFC because the banks charge on loans that are linked to MCLR whereas NBFC rates are linked to the benchmark prime lending rate.
2. Banks provide overdraft services: The home loan is a long-term commitment with high-interest costs. For example, suppose you have a Rs 50 lakh home loan with an interest rate of 8.6 per cent per year for a term of 20 years. You would have to pay nearly Rs 55 lakh in interest over the life of the loan, which is more than the principal borrowed. People who take out home loans try to reduce their interest payments through prepayments. This is where the overdraft facility comes in handy. A home loan with an overdraft facility is linked to the borrower’s bank account, and surplus funds can be parked in that account. Surplus funds above the EMI are treated as pre-payments on the home loan. This reduces the overall loan liability, resulting in lower interest payments. You can even withdraw the surplus as needed. Overdrafts are available to home loan borrowers through banks, but not through HFCs.
3. Banks prefer good credit but offer low-interest rates: It is no secret that bank documentation is very strict. And getting a home loan from a bank is difficult if you have a low credit score. The greater scrutiny by banks means attractive interest rates. This is because banks’ stringent standards require you to maintain a good credit score in order to qualify for home loans with low-interest rates.
So we are saying,
If you have a good credit history and credit score, you may be able to negotiate a lower interest rate on a home loan. Home loans are typically taken out for a longer period of time, with terms ranging from 25 to 30 years. As a result, while banks may offer lower home loan interest rates than NBFCs, it is best to consider other factors before making a final decision. However, in the end, the customer’s decision should be based on what they prefer when looking for a financial institution.