Banks are institutions that deal with money and its substitutes and facilitate other financial services. They accept deposits and lends loan and earn some profit from the difference in interest rates paid and charged. People approach banks for financial benefits like for Fixed Deposits, Home loans, educational loan, agricultural loan, transferring funds, etc, whereas the Non-Banking Financial Institutions also provide the services provided by the banks, but they do not have a full banking license or it is not supervised by a national or international banking regulatory agency. The main role of NBFC is to help and increase the wealth creation, substantial employment generation, to finance economically weaker sections, development of the sectors like transportation and infrastructure.
Both Banking and Non-banking financial institutions provide home loans it might be similar on the surface, but definitely, there will be some distinct features due to the difference in the regulatory environment and fund. The interest rates disclosed by each are different some may point higher interest rates because the interest rates by the banks are linked to an external benchmark also. The rates get varied under the economic conditions and the repo rates cut by the RBI. Currently, home loan interest rates start at 6.85%. The rates are even better for women borrowers as bank runs special discounted schemes on the property with the primary applicant or co-applicant as a woman. Besides the lower interest rates provided by the financial institution, there are also transmission rates which are considered as more transparent in the case of a bank as we compared with the non-banking financial companies. During the last financial year, the apex banking authority in India -Reserve Bank of India mandated the banks to link their floating retail loans to an external benchmark, which makes it easier for the borrowers to understand when the interest rate on their loans would change. Home loans can be considered as same as a mortgage loan that could move on for as long as 30 years.
The other factor which is most important to consider is the convenience that the lender is offering, they should ensure that the information regarding loans such as access to the loan account, interest certificate should be available to the customers through the click of a button. NBFCs including HFCs made their delivery models in prioritizing the customers. The tenure of home loans is much longer than others because the loan amount is considerably large, so most of the home loan seekers search for low interest rates. People should be aware that banks usually have much more stringent eligibility criteria than HFCs the processing time of public sector banks are much longer, so people those who are not able to avail loans from a bank must opt for HFCs
Loans from NBFCs are linked to the prime lending rates which allow them to get better freedom in setting rates to meet the customer’s demand. They provide more relaxed policies to the customers with low credit scores and they consider the stamp duty and registration cost as a part of the property’s market valuation. One other advantage is that the NBFCs link their rates to internal benchmark which is not varied independently.
