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A personal loan is a financial product that helps borrowers fulfil their urgent needs. It is primarily used to cover expenses such as medical emergencies, travel, home repairs, debt consolidation, and other planned or unplanned expenses. Both banks and NBFCs offer personal loans.
Banks have strict eligibility criteria and take a long time to process the loan. But they have low interest rates. Whereas NBFCs have less strict rules and regulations, a fully digital process, and faster approvals. So, the question arises in the minds of borrowers whether to choose an NBFC or a bank for a personal loan – which is the better option?
To select the best option, one needs to understand the difference between a loan from an NBFC and a bank. In this blog, you will study in detail about the meaning of NBFCS and banks, the pros of their personal loans and how they differ from each other. This will help you to make the right decision.
NBFC stands for Non-Banking Financial Company. It is registered under the Companies Act, 1956 and is regulated by the Reserve Bank of India. It offers banking-like services, which include loans, but operates under a different framework than traditional banks. However, they cannot accept demand deposits.
NBFCs provide loans with easy eligibility criteria and faster approvals. They also cater to those individuals and businesses who don’t qualify for bank loans. Mostly, NBFCs now accept digital applications, which makes the loan process more convenient and faster.
When deciding between an NBFC or bank for a personal loan, it's necessary to understand the benefits that NBFCs have as compared to banks.
1. Processing Time - NBFCs have fewer regulatory requirements and have minimal documentation. Hence, they are able to process the loan quite fast.
2. CIBIL Score - Even those borrowers who have a low CIBIL score can get a personal loan from an NBFC.
3. Flexibility - NBFCs have easy eligibility criteria. Due to this, they can cater to wider range of customers.
4. Documentation - It requires only basic documents for loan processing.
5. Customized Products - NBFCs offer innovative loan products tailored to specific needs like small-ticket loans or instant loans.
6. Technology - NBFCs make the borrowing experience more convenient by making use of technology like digital apps and AI-based support.
You may also read this: Reasons to apply for personal loan
Banks are financial institutions that are registered under the Banking Regulation Act, 1949 and are regulated by the Reserve Bank of India. They offer various services to individuals and businesses. They handle savings and current accounts, provide loans, issue credit cards, manage wealth, exchange foreign currency and provide various other services.
Unlike NBFCs, banks can accept deposits and issue cheques. Banks follow strict rules and regulations. They have strict eligibility criteria for loans and prefer to give loans only to those borrowers who have stable income and a good credit score.
Before you choose between an NBFC or a bank for a personal loan, you should consider the benefits that a personal loan from a bank offers.
1. Interest Rates - Banks offer personal loans at lower interest rates as compared to NBFCs, which makes borrowing very cost-effective.
2. Tenure - Banks offer flexible and longer repayment tenures.
3. Regulatory Security - Banks are governed by the RBI Regulation Act. Hence, it ensures higher security for your transactions.
4. Higher Loan amounts - You can get a higher loan amount depending on your income and repayment capacity.
5. Existing Customer Benefits - Salary account holders and long-term customers can get pre-approved personal loan offers.
If you are planning to take a personal loan, then you should understand the difference between a loan from an NBFC and a bank. This will help you make the right decision.
| Parameter | NBFC | Bank |
|---|---|---|
| Regulation | Regulated by the RBI but have fewer restrictions. | Highly regulated by the RBI and have to follow strict rules and regulations. |
| Interest Rates | Interest rates on personal loans are higher | Interest rates on personal loans are lower |
| Eligibility Criteria | Flexible eligibility criteria | Strict Eligibility Criteria |
| Documentation | Minimal documentation | Requires heavy paperwork |
| Customer Profile | Suitable for a wide range of borrowers, which includes self-employed and underserved groups | Suitable for salaried individuals and large corporations who have stable income. |
| Disbursal Time | Fast disbursal within 24-48 hours | Disbursal is longer and can take 2-5 working days |
| Loan Amount | Flexible loan amount with lower eligibility | Higher loan amount depending on income and creditworthiness |
| Customer Service | Focused with innovative solutions | Comprehensive with many service options |
| Existing Customer Benefits | Such benefits are limited | Existing customers are offered pre-approved loans and special offers. |
Both banks and NBFCs have their own pros and cons. The right choice between an NBFC or a bank for a personal loan depends on your individual needs, preferences, and financial profile.
Choose an NBFC Personal Loan When: -
Choose Bank Personal Loan When: -
You may also read this: Circumstances when a personal can help you
Need for personal loans can arise at any time. And one can avail the personal loan in two ways: banks or NBFCs. Whether one shall go for an NBFC or bank personal loan depends on one’s individual preferences and financial needs. A bank is more suitable for those borrowers who have a strong credit score, stable employment and need lower interest rates.
Whereas an NBFC personal loan will be a better option if you want funds quickly and need simple documentation. It is also good for those who don’t qualify for traditional bank loans. Hence, you shall analyse your own situation and then take the final decision.
Yes, NBFCs offer personal loans to even those borrowers who have low or moderate credit scores. However, you should have a stable income, a stable job and satisfactory repayment capacity. But this personal loan will come with higher interest rates.
Yes, banks offer loans at lower interest rates as compared to NBFCs. This is because they have strict eligibility criteria, which reduces the risk involved.
Personal loans offered by RBI-registered NBFCs follow the regulatory guidelines set by the RBI. Hence, you should always prefer an RBI-registered NBFC and feel safe and secure.
Borrowers who need urgent funds, have moderate credit scores, have limited credit history, and are self-employed or freelancers may find NBFCs more suitable as compared to banks for a personal loan.
Yes, you can apply for a personal loan online with both banks and NBFCs. They both now offer services through digital portals and mobile apps.
During urgent needs, it’s advisable to select an NBFC loan as they require minimal documentation and have fast approval and disbursal. Banks, on the other hand, take a long time to process due to a detailed credit assessment and verification process.
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Unifinz Capital India Limited is a Non Banking Finance Company (NBFC) registered with the Reserve Bank of India (RBI). lendingplate is the brand name under which the company conducts its lending operations and specialises in meeting customer’s instant financial needs.
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