Understand Which One Is Ideal for Taking a Home Loan: NBFC or a Bank?

When you purchase a residential property or construct a house – availing a home loan with the best deals should be your top priority. After all, a home loan may be your longest financial commitment, which will have an impact on your current and future financial planning. However, deciding on the best financial institution to avail this credit from becomes tricky, given the market’s competitive nature.

With the exponential rise in credit share of NBFCs since 2015, the number of such loan options available to borrowers has increased over time. Owing to this growing trend, you’ll come across reputed NBFCs offering home loans with attractive benefits. However, while availing a home loan, you must know the various factors that set the NBFCs apart from the financial institutions.

Let’s have a look at their differences and then choose your lender accordingly –

• Difference Based on Interest Rates

Financial institutes determine the interest rates on a loan based on MCLR (Marginal Cost of Lending Rate), which serves as a benchmark for lending and is monitored by the Reserve Bank. On the other hand, NBFCs and financial institutions offer home loan interest rates after adding a margin over the prevalent MCLR. NBFCs offer more beneficial terms to borrowers and as such are more willing to adjust to any reduction in the lending rates in comparison to other financial institutions. A borrower can benefit from such borrower-friendly features from an NBFC.

• Difference Based on Eligibility Criteria

As paperless financial technology has gained prominence, lenders increasingly depend on CIBIL scores to determine your housing loan eligibility. While PLR and MCLR set the upper caps on interest rates – the interest rate you pay is linked to your CIBIL score. Here’s how a credit score can determine your home loan EMIs.

Leading financial institutes offer their best lending rates to customers with a credit score of 700 or more. However, NBFCs have less stringent home loan eligibility criteria and provide home loans to customers with relatively lower credit scores.

• Difference Based on the Loan Amount

Financial institutions allow LTV (loan to value) ratio of up to 80% of the property’s value based on present market value. But keep in mind, your property’s actual cost goes up during acquisition from other costs such as –

• Stamp duty

• Registrations

• Payments toward brokerage, etc.

Although both financial institutions and NBFCs are barred from funding stamp duty and registration cost, NBFCs include them as a part of the valuation of your property. As such, the borrower is able to avail a larger loan amount as per their eligibility.

• Prepayment and Foreclosure Charges

Just like any other credits, a home loan also has associated fees attached to it. Both financial institutions and NBFCs have prepayment and foreclosure charges. Besides, there are late payment charges which could even be 10%-20% of your EMI – allowing you no respite in cases of defaulting on payments. Furthermore, most lenders impose higher processing fees.

Here, an exception in this scenario is Bajaj Finserv, who offer Home Loans with –

• Attractive rates of interest

• Flexible repayment tenors

• Relaxed balance transfer facility (documents required for home loan balance transfer is minimal)

• Instant loan approval and disbursal of the sum

• Top-up loan facility over your existing housing loan to fund your other requirements

Know how you can apply for a Bajaj Finserv Home Loan online and enjoy industry-first features and benefits.

Keeping this information in mind, you will have a clear understanding of where you can avail a home loan in future. Refer to such top lenders to make your repayment procedure to make your loans as easy to avail as possible.