Choosing between Banks and NBFCs: The Right Partner for Your Home Loan

Posted in Housing Articles By Sajhyadri Chattopadhyay-
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Whether you're looking for realty investments or planning to purchase a new house, a home loan can be a wise choice to help you avoid depleting your savings in this endeavour. Before navigating the world of home loans, there are several factors you need to be aware of to make an informed decision.

Benefits of Choosing a Home Loan from an NBFC

  • Flexible Eligibility Criteria: NBFCs are known for their flexibility, catering to borrowers with lower credit scores or unconventional income sources.
  • Faster Processing: NBFCs typically process loans more quickly, which is advantageous for borrowers who need funds urgently.
  • Customized Loan Products: NBFCs offer specialized home loan products tailored to specific customer segments.

Downsides of Choosing a Home Loan from an NBFC

  • Higher Interest Rates: NBFCs often charge higher interest rates due to their higher funding costs.
  • Beyond the System: NBFCs are not part of the payment and settlement system; hence, it cannot issue cheques that are drawn on itself.

You might also like: Home Loan Agreement: Important Clauses That Borrowers Must be Aware of

Benefits of Choosing a Home Loan from a Bank

  • Lower Interest Rates: Banks typically offer lower interest rates due to their access to low-cost funds from RBI and customer deposits.
  • Better Transparency: Banks adhere to strict regulations, ensuring transparency in their loan processes. This makes it easier for borrowers to avoid hidden charges.
  • Overdraft facility: Only banks can allow borrowers to deposit any additional amount apart from their EMIs into their loan account that they can withdraw if needed.

Downsides of Choosing a Home Loan from a Bank

  • Stringent Eligibility Criteria: Banks have stricter eligibility requirements which can make it difficult for some borrowers to qualify.
  • Rigid Documentation Requirements: Banks may require a long list of documents, which can be cumbersome to procure for some borrowers.
  • Credit Score Restrictions: Banks often reject home loan applications if the borrower’s CIBIL is not over a certain level.

Sources of Home Loan – Banks & NBFCs

As a potential homeowner shopping for a home loan, you can choose between a bank and a Non-Banking Financial Company (NBFC), like a Housing Finance Company (NBFC). Both lenders have their set of pros and cons that you should keenly assess before making a decision.

Key Differences Between Banks and NBFCs

Here are some key distinctions to consider when choosing a home loan:

  Criteria   Banks   NBFCs
  Interest Rates   Directly regulated by the RBI   Set their own rates
  Credit Score   Must be over 650 to accept home loan application   May accept lower scores while charging higher interest rates
  Terms and Conditions   Follow strict guidelines   More relaxed and flexible
  Eligibility Criteria   Stricter than NBFCs   Lenient compared to banks
  Processing Time   Longer processing period   Faster, often within a few days

Factors to Consider Before Choosing Your Home Loan

Go through these simple points that can help ensure you undergo a smooth and straightforward decision-making process –

Transparency: Know What You're Getting Into

Before applying for a home loan, it's crucial to understand the entire process involved. Any reputable lender provides a transparent breakdown of all the steps involved in the application process. Typically, you have to fill out an application, provide the necessary documents, and await verification. After that you will receive an approval letter for your home loan.

Customer Service: The Power of Good Support

Robust and prompt customer service is important for any borrower. Before taking a loan, you can assess a bank's customer service by asking questions like –

  • How efficiently can they expedite the loan process?
  • How quickly can the lender respond to your queries?
  • What is their track record in resolving customer issues?

Interest Rate: Finding the Right Balance

While comparing home loan interest rates, remember that the lowest rate does not necessarily mean that it is the best option. Loans with a lower interest rate might be available for a shorter tenure only, or vice versa. Moreover, understand the difference between fixed and floating interest rates. Floating rates can change during the loan tenure, as they are market-linked, while fixed rates remain constant.

Tenure Flexibility: Make Repaying Easier

A home loan's affordability is not only about low-interest rates but also about finding a repayment tenure that aligns with your needs. The right tenure will ensure that your home loan EMIs do not burden your lifestyle.

Hidden Fees and Charges: Skip Surprises

Before signing a home loan contract, make sure you are intimated about any hidden fees in the overall process. Common charges that you should be mindful of include loan processing fees that covers administrative costs and bounce charges that are imposed for defaulting on EMIs.

Repayment Capability: Plan for the Future

Assess how much you can afford to pay back as EMIs in the long term. While calculating, consider your current and future income, additional income sources, and potential external expenses. Remember that either of these could increase over time, affecting your repayment capability.

Explore offers from various financial institutions to before choosing a lender and home loan. This will help you find the best home loan for yourself. On Bajaj Markets, you can check out a wide range of home loans that suit your housing finance needs. Benefit from moderate interest rates, minimal documentation, low processing fees, flexible repayment options, instant approval of your application, and quick disbursal of the funds. With Bajaj Markets, your dream of homeownership can indeed become a reality!

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