Everyone desires to own a house one day and to bear this expense, a home loan is a necessity. For applying for a home loan, you have two options which are either from banks or from (NBFC)Non-Banking Financial Companies. You can choose by comparing the key factors which are loan repayment period, housing loan interest rate, processing fee, etc.
The Reserve Bank of India (RBI) governs all commercial banks. Whereas NBFCs are governed by the National Housing Bank (NHB). NBFCs or HFCs have to obtain proper certification to lend money to borrowers.
Home loans from both sources can be similar looking, but it is just from the surface. However, all the loans from different banks or financing companies are different due to their policies, benefits, and many more features.
Advantages of Taking a Home Loan from a Bank
1. Banks Pass on Interest Rates
The RBI-regulated compulsory MCLR model, i.e., Marginal Cost of fund-based Lending Rate, is to be followed, their home loans must be linked to the MCLR model.
2. Overdraft Facility
Home loan has a high-interest rate due to their long duration. For example: In most of the loan policies if you take a principal amount of Rs. 50 lakh as loan and interest is 8.6% then the interest amount will be approximately Rs. 55 lakh, which is more than the principal amount. In this situation, either you have to look for a loan with less interest or an overdraft facility will help you.
3. Appropriate Interest Rates
Though bank policies are strict, the interest rates are very good. It means that banks reject the application of a person with a low credit score but still, the person whose loan is approved gets to utilize those attractive schemes. However, HFCs do not provide such attractive rates.
Disadvantages of Taking a Home Loan from a Bank
- The process of documentation is very lengthy and stringent.
- A low credit score reduces your chances of getting your home loan interest rate approved.
- Banks do not apply stamp duty and registration costs on home loans sanctioned by them.
Advantages of Taking a Home Loan from NBFC
1. Offer a Higher Loan Quantum
Stamp duty and registration costs are included in HFCs on the market value of the property. For example, a property’s market value is Rs. 50 lakh with stamp charges being 5% of the total market value of the property. Over here, average registration charges are 1% of the market value of the property. Hence, overall 3 lakh on the principal amount of 50 lakh rupees. They give prime lending rates to their customers.
2. They are More Relaxed Regarding Credit Score
Applicants having a credit score of less than 750 also get loans easily. Hence, they open applications to many loan applicants.
HFCs provide many improvements to reach a good credit score. HFCs are very flexible.
3. Quick Documentation Process
The documentation process is very fast and simple as compared to banks, and they sanction home loans at a great pace. HFCs are very flexible in offering loan periods, processing fees, etc. However, the interest rates are very high compared to banks. They will provide loans by fail.
Disadvantages of Taking a Loan from an NBFC
- Interest rates are higher than banks.
- Their rates are never presented publicly, so you will never know what the best price is. Even they pass interest rate cuts at a very slow speed to the borrowers.
- No overdraft facility is available.
Before you apply for a housing loan, compare the best offers from banks and NBFCs to get low-cost home loans.
