08 June, 2022 Home Loans
A home loan is a secured loan taken from a financial institution for buying a residential property.
A home loan is a secured loan taken from a financial institution for buying a residential property. Home loan can be availed to buy a ready-to-move in house or apartment or under construction property. Home loans can be taken from both banks and Non-Banking Financial Companies (NBFCs).These have varying home loan interest rates which are associated to your credit score. Home loans typically have a tenure of up to 30 years and have to be repaid as Equated Monthly Installments (EMI more popular). Tax rebate can be attained on both the principal and interest component of your home loan under Section 80C and Section 24 respectively of the Income Tax Act.
Home loans are offered by a wide range of banks and Non-Banking Financial Company (NBFC). There are many considerable points when applying for a home loan, but the first and most important decision you have to make is whether to apply for your home loan from a bank or an NBFC. Below are all the required details to make right decision between a bank and NBFC:
Home loans from banks:
In the case of public sector banks, which are offering the lowest rates, not only the eligibility criteria are the strictest, the processing time and disbursal takes much longer. Banks are offering home loans at interest rates below 7%. Besides lower interest rates, the transmission of rates is more transparent in the case of banks compared with non-banking financial companies (NBFCs).
Disadvantages of taking loan from bank
Home Loans from NBFC
It is important that customers are handheld during this journey. Solutions such as 24x7 support, access to the loan account and other information such as interest certificate should be available to customers at the click of a button. These predictable conveniences form a warm and long-lasting relationship, making life simpler for customers.
Unlike bank loans that are linked to external benchmarks, loans from NBFCs are linked to the prime lending rate (PLR). NBFCs are free to set the PLR, allowing them greater freedom in setting rates to suit customers’ demands.
While NBFC can make the loan more expensive and less responsive to market changes, it suits customers and provides them with more options, especially when they fail to meet the loan eligibility criteria of banks. NBFCs have more relaxed policies towards customers with low credit scores, though these come with high interest rates.
Offer a higher loan quantum
In case of home loans, while neither NBFCs and HFCs nor banks can fund stamp duty and registration costs, NBFCs can include these costs as part of a property’s market valuation. This allows the customer to borrow a larger amount.
Quick documentation process
Documentation is simpler and turnaround time is also quicker in HFCs. They have less stringent documentation process as compared to banks and, have speedy process of sanctioning home loans to borrowers.
Overall, HFCs are more forthcoming and flexible while approving home loan applications. So, if you fail to get a home loan from a bank (may be due to insufficient income or you did not meet other eligibility criterion), then you can approach an HFC.
Thus, home loans offered by both institutions might seem alike on the surface, but the loans have different features due to the variances in the regulatory environment and fund sources of banks and HFCs.
Choosing between a bank or an NBFC for your home loan should be decided keeping in mind factors Like Home loan eligibility criteria, documentation required, processing time and speed, customer service efficiency, and ease of functioning. It is best to evaluate these factors and then decide.
Both have their pros and cons, but the decision should be dependent on which category you fall while applying for your home loan and what are your preferences to pursue.
The content of this article is general and is provided for informational purposes. It is not a substitute for advice specific to your situation. Information is subject to update, completion, revision, verification, and is subject to change. ART Housing Finance (India) Ltd is not responsible for any direct/indirect loss or liability suffered by any reader because of making financial decisions based on the information provided.