For decades, banks were the only accessible option for people to obtain a loan. However, with advancements in the fintech industry and the RBI opening up its arms to private lending institutions, several Non-Banking Financial Companies (NBFCs) have entered the market. These organisations are registered under the Companies Act 2013 and are active in loans and other financial services. Reputable companies, like NBFCs, provide favourable Personal Loan terms and conditions, making it easier for borrowers to repay their EMIs.
For those confused between borrowing from banks and NBFCs, sticking with an NBFC might be a better option for various reasons. Let’s look into the details.
What is a Bank?
Banks or financial institutions are leaders in the finance sector. They provide a safe platform to deposit money and earn interest in return. They also offer investment and credit facilities (loans and credit cards).
What is an NBFC?
NBFC stands for Non-Banking Financial Company that also performs certain financial activities like credit facilities, investments, insurance, loans, etc., but they are not banks. Primarily, the major difference is that they do not save deposits from people.
Difference Between Banks and NBFCs
Before understanding why NBFCs are better than banks for obtaining loans, let’s know the difference between the two:
|
Parameter |
Banks |
NBFCs |
|
Purpose |
Banks are legal financial institutions offering financial services to consumers. |
NBFCs offer financial services to consumers without banking facilities. |
|
Deposits |
Take deposits and sanction loans. |
Do not take deposits but sanction loans. |
|
Foreign Capital |
Foreign capital is limited to a certain amount. |
Foreign capital is allowed up to 100%. |
|
Registration |
Registered with the RBI. |
Governed by the 1956 Companies Act. |
|
Loan Guidelines |
Stricter lending guidelines. |
Easier eligibility criteria. |
|
Loan Interest Rates |
Subject to RBI policy rates and market conditions. |
Have complete control over interest rates based on their internal benchmarking. |
Reasons to Get an NBFC Personal Loan
Here are the top reasons to get an NBFC Personal Loan:
● Wider Range of Credit Products
NBFCs offer various credit products customised to meet multiple financial needs. Whether a borrower needs funds for a medical emergency, higher education, travel plan, wedding expense, home renovation, debt consolidation, or another big-ticket expense, NBFCs offer specialised loan products for specific purposes. This level of diversity sets them apart from banking solutions, ensuring convenient access to funds without hassle.
● Rapid Transfers
Before sanctioning credit requests, banks require borrowers to complete a long list of conditions and formalities. That’s not the case with NBFCs. With a streamlined financing method, loan seekers can obtain an NBFC Personal Loan much more easily and quickly. Most technologically advanced NBFCs provide online loan application facilities, drastically streamlining the procedure and reducing the inconvenience. Many reputed institutions have mobile applications supporting easy, stepwise methods for online loan applications. The best loan app supports a 100% digital loan process, making approvals possible in minutes and providing quick credit access in emergencies.
● Quicker Processing
Traditional loan companies have stricter eligibility conditions as they work under established rules, laws, and regulations. Aspiring borrowers must follow various procedures to prove their eligibility and creditworthiness before getting loan approval and disbursal. The entire application to disbursal procedure takes days, sometimes even weeks, to complete. On the other hand, NBFCs are more flexible with their standards and renowned for quicker loan processing and approvals. Moreover, applicants can apply for the required loan from the comfort of their homes and get the required funding in minutes.
● Minimal Documentation
Another reason why an NBFC Personal Loan is better than traditional loans is the minimal documentation they demand. NBFCs restrict their documentation requirements to a minimum to keep things easier for borrowers. They only demand a few crucial pieces rather than requiring bunches of documents to prove identity and finances. Moreover, they do not ask applicants to their branch office for document submission. The best loan app supporting a 100% digital loan procedure accepts soft copies of the required documents uploaded online.
● Lenient with Credit Scores
Getting loans from traditional entities is extremely challenging for low-credit-score individuals. Some banks with tight requirements do not consider applicants with a credit score below 750. However, NBFCs are lenient when judging applicants’ creditworthiness based on their credit score. With a low credit score requirement, even low-score individuals may obtain loans and build their credit history with timely repayments.
● Competitive Interest Rates
Interest rate is the key element affecting the total loan cost. While traditional lending companies must follow the RBI rates and guidelines to offer interest rates to their customers, NBFCs have complete authority to determine their interest rates based on the applicant’s credit history and repayment capacity. Low-risk borrowers may get a lower Personal Loan interest rate from NBFCs than other lending sources.
● Better Customer Service
NBFCs are renowned for their personalised service and customer-centric approach. They prioritise long-term relationship building with customers by offering them dedicated guidance and support through the loan procedure. With a customer-friendly mindset, they provide a seamless experience when addressing concerns and queries promptly. An enhanced customer support system gives a pleasant experience throughout the loan journey at different stages.
● Online Facilities
NBFCs offer various online facilities on their websites and loan apps to keep things easier for customers. These include eligibility calculators, EMI calculators, credit score checking tools, etc. They help customers make informed borrowing decisions according to their requirements and preferences. Moreover, NBFCs accept EMI payments through multiple methods, allowing borrowers to pay their EMIs using their preferred payment method.
Conclusion
Both banks and NBFCs provide financial services. However, when it comes to borrowing, NBFCs provide incredible financing solutions during urgent money requirements. Although an NBFC Personal Loan is a newer facility available in India, it still has several benefits over its traditional counterparts. While each individual has unique needs and expectations, their final choice depends on their loan amount requirement, interest rate affordability, urgency of financial support, and level of customer service expected.
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