Home Discover Journals Factors to Consider before Deciding to Go for a Bank or a Housing Finance for a Home Loan

Factors to Consider before Deciding to Go for a Bank or a Housing Finance for a Home Loan

By Finserv MARKETS - Dec 4,2019
Views Icon819 Views 0 0 Comments

Factors to Decide To Go For a Bank or Housing Finance

When you look for a home loan, you will come across two options; the first option is a bank and the second alternative is a Non-Banking Finance Company (NBFC), such as a Housing Finance Company (HFC). The Housing Finance Company is regulated by the National Housing Bank and is of great help in financing the acquisition or construction of houses.

When you have to choose between the two, you need to consider various factors like the interest rate, processing fees and loan tenure, among others. Both the options might seem similar. However, banks and HFCs have several differences.

Explained ahead are the key pros and cons of taking a home loan from a bank and an HFC to give you a better understanding.

Home loan from banks: Key advantage

  • Immediate benefit from the changes in interest rate

Banks have a Marginal Cost of Funds-based Lending Rate (MCLR), which is controlled by the Reserve Bank of India (RBI). As directed by the RBI, banks need to link home loans to their marginal cost of borrowing across terms. Banks pass the interest rate changes to you earlier than HFCs because the interest rates of the bank are linked to MCLR. In the case of housing companies, these rates are linked to the Benchmark Prime Lending Rate (BPLR). In MCLR, the interest rate charged on current loans is revised on the date when the revision happens. This revision can happen on a half-yearly or yearly basis.

Other benefits

Banks offer attractive interest rates on home loan as compared to HFCs. They also provide an overdraft facility to reduce the loan liability.

Home loan from banks: Main drawback

  • Complex application procedure

Most banks have a complex process when it comes to application and the essential documents required for home loan. This makes the application process time-consuming. Additionally, if you have a low credit score, you might not get a loan easily.

Home loan from HFCs: Key advantage

  • High loan amount

When approving the loan, an HFC includes the cost of registration and stamp duty in its valuation. As compared to traditional banks, the loan amount sanctioned by HFCs is significantly higher. For instance, if the property’s cost is INR 50 lakh and stamp duty and registration costs are INR 3 lakh, HFCs will consider the property’s total value as INR 53 lakh and will sanction the loan as per this amount. Banks will not consider the stamp duty and registration charges and provide you with a home loan as per the property value of INR 50 lakh.

Other benefits

As compared to banks, HFCs are quite relaxed about the credit score and they have a quick documentation process as well.

Home loan from HFCs: Main drawback

  • High-interest rate

HFCs charge a higher rate of interest on home loans as compared to banks. HFCs take time to pass the interest rate cut to borrowers because they base the lending rates on the BPLR.

Both banks and HFCs have their pros and cons. You need to analyze these carefully before choosing your preferred lender. You need to enquire if the lender provides the facility of prepayment of home loan and the charges associated with the same if you wish to repay your liabilities earlier.

Before you settle for a home loan, it is recommended to compare various deals offered to you by the different financial institutions. This will help you find the best home loan for yourself. Home loans available at Finserv Markets come with attractive interest rates and other lucrative features such as flexible repayment options, less processing fees, minimal documentation, instant approval, and quick disbursal. You can avail a loan amount of up to 3.5 crores with a repayment tenure of 25 years. A high credit score will help you avail a higher loan amount at a reduced rate of interest. Lastly, make sure to read the terms and conditions of the loan agreement carefully before signing it. This will help you avoid any inconvenience in the later stages.

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.


Connect with Us
Connect with Us

Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522