Banks vs. NBFCs: Which is Better for Housing Loans?
Banks vs. NBFCs: Which is Better for Housing Loans?

From the perspective of securing a housing loan, prospective home buyers often find themselves in the dilemma of approaching a traditional banking structure or an NBFC. Both kinds of lenders have their peculiar set of pros and cons, and an understanding of these will go a long way in determining a strong financial future for you. Furthermore, at this juncture, relevant references ought to be made about the need for home insurance, homeowners insurance, property insurance, or building insurance so that these can act as investments in your favour.
Understanding Housing Loans
A housing loan is a loan that one can borrow money to acquire an immovable property, construction, or renovation of an immovable property.
These loans normally have a fixed or floating interest rate and are payable over a specified tenure, which ranges from 10 to 30 years. One should know about the types of housing loans so that one can choose the one most applicable to him/her/it.
Types of Housing Loans
1. Home Purchase: For purchasing an existing property or a new home.
2. Home Construction: For constructing a new home.
3. Home Renovation: For renovating or improving an existing property.
4. Land Purchase: Buy land on which you plan to build a home.
Banks over NBFCs: Some Key Differences
Whenever you have to choose between a bank and an NBFC for your housing loans. Understand first those key differences that would affect you as a borrower.
Regulatory Framework
The Reserve Bank of India regulates banks. They are subjected to strict lending practices, interest rates, and customer service-related guidelines.
Such regulation could be an assurance to borrowers that banks function within a defined framework.
In contrast, NBFCs are regulated by the RBI, but they have a greater degree of flexibility in their operations. They might be giving more innovative products and services. This flexibility may also lead to higher interest rates and other fees.
Loan Approval Process
The loan approval process of banks is long and tedious: so many documents have to be filled.
A good CIBIL score with a stable income and a long history of financial attitude needs to be analysed in detail by banks to provide this facility to you. Hence, only a qualified person gets the benefit of this thorough procedure.
NBFCs, on the other hand, have smoother loan approval processing and quicker processing speed compared to banks. It probably considers very low credit score applicants or those whose incomes are not considered regular. This can be a boon to first-time home buyers or those with fairly unique financial situations.
Interest Rates
Interest rates at the banks are generally lower in comparison with those of NBFC.
This is due to the higher capital base they have and their lower operating costs. Interest rates, however, depend on the credit rating of the person applying for a loan and also on the policies of the bank concerned.
On the other hand, NBFCs might charge higher rates of interest, but they offer more options or flexibilities regarding repayment and also very fast disbursement of the funds. This is very attractive for borrowers who want their money right away.
Customer Service
Conventional banks usually have a very mature customer service architecture. This brings their very own brand of bureaucracy.
Longer queues and a lack of touch in customer service can be felt by customers. In some cases, this was found even more frustrating when applying for a loan.
Unlike them, NBFCs take pride in assisting customers excellently, often providing personal assistance with a very quick response time to inquiries, making the borrowing experience quite simple and pleasant.
Other Services
Many banks provide a variety of financial services apart from housing loans, such as savings accounts, fixed deposits, and insurance products.
If one considers it easier to manage all one's finances in one location, then this facility is generally preferred. Most of the time, NBFCs are found dealing with loans, and only some NBFCs offer other services like insurance products in addition to loans. However, this is not that exhaustive compared to conventional banks
The very first and foremost thing in buying a house is insurance.
Whether you go with a bank or an NBFC for a housing loan, no matter what, you must think about the various kinds of insurance options that can safeguard you from the monetary losses of your investments.
Here is a breakdown of the different types of insurance each one should consider while buying a home:
1. Home Insurance : Home insurance is a kind of comprehensive insurance policy that covers one's home against various perils ranging from fire, theft, etc., to natural disasters.
It covers the structure of the home and also the belongings under the roof of a house, thus providing financial security in case of loss of either of them. It is essential to have home insurance when buying a home so that your investment is secure. 2. Homeowners Insurance2. Homeowners insurance - It is similar to home insurance but usually also carries extra liability coverage.
Such insurance would protect the owner from claims of injuries and damages occurring on his/her property. Hence, all homeowners require this to protect them against some financial loss.
3. Property InsuranceProperty insurance shall comprise coverages for real estate besides those of residential and commercial property.
It takes care of the losses that arise from damage or destruction of property so that you can recover financially in situations of unforeseen events. This proves a necessity for all such homes to sustain their value against investments.
4. Building InsuranceBuilding insurance, as the name suggests, covers your actual building structure for risks like fire, flooding, and vandalism.
It is significant for homeowners because it contributes to the cost of repair or rebuilding in the event of damage. Building insurance would yield a lot of peace of mind, knowing that the investment is protected.
Choosing the right option for your housing loan
Considering the above-mentioned facts, it is time to select between banks and NBFCs regarding your housing loan.
1. Assessing Your Financial ProfileYou need to scrutinise your credit score, income stability, and financial obligations before jumping on the decision.
Good credit scores might get you excellent interest rates at banks, while an applicant with a low score would have to resort to the NBFCs with their relatively easy approval processes.
2. Interest Rates and Fees in ComparisonAnother important area of comparison involves interest rates along with other fees from both banks and NBFCs.
Bankers, on account of lower interest rates, may be considered a preferred choice, whereas NBFCs are inclined to give away more lenient tenure options appropriate to your financial stature. Always read the fine print for any possible hidden charges.
3. Evaluation of Customer ServicesWhat kind of customer service do you expect during the loan application process?
NBFCs might work for you if you are inclined toward personalised services and swift responses. However, if the stability and repute of a traditional bank hold value for you, such a consideration will undeniably influence your choice.
Conclusion
It is equally important to note the pros and cons of the two options, as understanding these differences will become vital. To further protect your investment, it is equally important to purchase the right kind of insurance, whether home insurance, homeowners insurance, property insurance, or building insurance. You can make the right choice to meet your needs after taking a good look at your financial profile, comparing interest rates, and considering customer care.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales
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