Banks are a popular option to apply for online home loans and non-banking finance companies, and they have gained demand in recent years. In several cases, people depend on banks for home loans but understanding the differences between banks and non-banking financial companies is essential. When a bank rejects your application for online home loan, non-banking finance companies approve it because of its lenient rules and regulations. It will help if you do not forget to compare the home loan rates from multiple lenders. The article will differentiate between banks and non-banking finance companies and guide you on which is better.
Difference Between Banks and NBFC
The difference between banks and non-banking finance companies are as follow:
The paperwork procedure is lengthy and strict in banking institutions. On the other hand, this procedure in non-banking finance companies is more lenient. Self-employed working individuals who can not show any proof of salary can apply for online home loans in non-banking finance companies after checking out the home loan rates.
Time Taken for Processing
In contrast to non-banking finance companies, banks take more time to process online home loans. On the other hand, in comparison to banks, non-banking finance companies take approximately 72 hours to process home loans.
Terms and Conditions
The terms and conditions of applying for home loans in banks are strict compared to non-banking finance companies. On the other hand, the terms and conditions in non-banking finance banking companies are lenient and flexible.
Banks can reject your application for a home loan if your credit scores are not good and equivalent to 700 or more than 700. On the other hand, even if your credit scores are not good and you have a low credit score, like less than 600, you can still avail of a home loan but with high home loan rates.
Term of Home Loans
The term of home loans that several banks offer is flexible and can be extended to up to thirty years. On the other hand, the term of home loans that non-banking finance companies offer can go up to twenty to 25 years, and the term of home loans is flexible, like the term of home loans in banks.
Rate of Interest
The Reserve Bank of India regulates the interest rates in banks and are connected to the repo rate in the Reserve Bank of India. Hence, the home loan rates fluctuate whenever the Reserve Bank of India hikes or reduces the repo rate. The interest rates on home loans that various banks offer is less in contrast to the home loan rates that all non banking finance companies offer.
On the other hand, the non-banking finance companies themselves decide and regulate the home loan rates. The current interest rates on home loans in the market influence the home loan interest rates in non-banking finance companies. Compared to interest rates on home loans in banks, the interest rates on home loans in non-banking finance companies are much higher.
Cash Reserve Ratio or CRR
Banks are required to retain the Cash Reserve Ratio with the Reserve Bank of India. In such cases, a bank needs an increasing number of home loans and has to hike the Cash Reserve Ratio with the Reserve Bank of India. The Reserve Bank of India keeps a check whenever banks offer home loans.
On the other hand, non-finance banking companies do not have to retain any Cash Reserve Ratio with the Reserve Bank of India or any other establishment. The home loans non-banking finance provides are from their capital; therefore, there is no intervention from the Reserve Bank of India.
If you have good credit scores and stand up to the eligibility criteria set by the banks, you should opt for online home loans instead of going for non-banking financial companies. Banks offer lower home loan rates and other privileges than non-banking financial companies. Nonetheless, if banks reject your application for a home loan and require a home loan, you can opt for online home loans from non-banking finance companies.