Home Loans unlike short-term loans such as Vehicle Loans, Personal loans, etc are much more responsible and have a long tenure. It needs utmost commitment towards repayment else you lose your money as well as collateral assets. The first question that comes to everyone who intends to buy their dream home is how to fund the purchase. The most preferred option is to get a Home Loan from a lending institution. There are two types of lenders i.e Banks and NBFCs (Non-Banking Finance Companies). In today’s article, we will discuss in length the difference between these two institutions and how their Home Loan offerings vary.
Banks vs NBFCs
Banks are financial institutions where people deposit money and earn interest on their deposits. Meanwhile, one can avail of loans from Banks and repay back with interest. Banks have the right to accept deposits. Banks can issue financial instruments such as cheques, Demand Drafts, Debit Cards, Credit Cards, etc. Banks are generally funded by Investors and deposits. They need to be strictly contingent as the public money is involved through deposits and retail investors.
Non-Banking Finance Companies do not have the legal right to accept consumer deposits. They only have the option to provide credit products and Loans such as Home loans, Loans against Property, Vehicle Loans, Business Loans, etc. They are generally funded by Investors and credits from the Banks. Regulations on NBFCs aren’t as strict as in banks here the investors’ money is lent to the institution’s customers.
We’ll further discuss How the Home Loans provided by Bank and NBFC differ?
Documentation
Banks require intense documents for approving a home loan compared to NBFCs which require comparatively lesser documents for processing. Banks intensively scrutinize during the processing of documents.
However, NBFCs require lesser documentation compared to Banks.
Interest Rates
The Home Loan Interest rate offered by Banks is directly linked to the repo rate of the Reserve Bank of India (RBI) or MCLR (Marginal Cost of Lending Rate). It varies as the RBI increases or decreases the repo rate which is altered depending upon the economic conditions of the country.
The interest rate of NBFC will remain the same throughout the tenure. It depends on the Prime Lending Rate which is not linked to RBI. It is determined by the lender which can be negotiated by the customer while applying for the loan. The option to negotiate is open only for customers who have high credit scores and met eligibility criteria without any issues.
Processing Time
Banks take longer to process your documents and the credibility of your submitted documents and your background will be checked. It consumes time and the time becomes lengthier.
However, if you apply to renowned NBFCs, your application will be processed as soon as 72 hrs. Money Mango has partnered with renowned banks and NBFCs and your application can be processed sooner than normal time.
Tenure Flexibility
The tenure of a Home loan offered by banks is usually capped at 20 or 25 years depending upon the applicant’s income. But, the NBFCs are flexible and provide tenure of upto 30 years for repayments.
EMIs
Home Loan EMI (Equated Monthly Instalments) when credit availed from Bank is variable and depends on the changing repo rate of reserve Bank of Inda. Monthly repayments changes when RBI increases or decreases the repo rate.
Home Loan by NBFC has fixed Interest rates and the EMI remains the same throughout the tenure as it doesn’t depend on the RBI’s repo rate.
There are a variety of factors that differentiate the Customer Service offered by NBFCs and Banks. While the NBFCs have been continuously upgrading their technology to meet customer demands, Banks are yet to achieve the pace that will ensure better service.
While the process seems tiresome, you can delegate the work to Home DSA like Money Mango who can fetch you the best solution to our Home Loan worries.
Contact us to get the best Home Loan in Bangalore.
