NBFC vs Bank - Which is Better for Personal Loan?

Personal loans are a great tool to fund any financial need, including a wedding in the family, a trip abroad, urgent medical expenses, debt consolidation, home renovation and repairs, and so on.

These loans are offered by almost all banks and non-banking financial companies (NBFCs) in India. That is why when you want to apply for a personal loan online or offline, choosing the best lender can be a difficult task.

Here we will discuss how NBFC personal loans are different from bank personal loans and which one to choose.

What is Bank?

Banks are organised financial institutions and are governed by the apex bank of the nation, i.e. the Reserve Bank of India (RBI).

What is NBFC?

A Non-Banking Financial Company or NBFC is not a bank. However, it runs financial functions similar to banks, like providing loans and credit facilities, investments, insurance plans, and so on.

Why Opt for NBFC Personal Loan?

NBFCs have been exceptional in the unsecured loans (including personal loans) market due to their customized offers, broader reach, co-lending agreements, robust risk management and a dynamic digital presence. NBFC personal loans come at attractive interest rates of 10.99% to 36% p.a. You can get the loan

amount of minimum Rs. 50,000 to maximum Rs. 50 Lakhs from NBFC in India

and make the repayment in equated monthly instalments (EMIs) in flexible tenure

of 10 months to 7 years.

NBFC personal loans offer the following benefits to the borrowers over traditional banks:

• Less stringent eligibility criteria: NBFCs usually do not require their personal loan borrowers to meet a long list of strict eligibility criteria like traditional banks. The age criterion for most NBFCs is 21 to 55 years and the minimum income required is Rs. 15,000 per month.
• Low CIBIL score requirement: Most banks require a credit score of minimum 750 or above to be eligible for a personal loan, which is not the case with NBFCs. Applicants with a low CIBIL score can also avail of an NBFC personal loan if they have a sufficient income and a good career portfolio.
• Instant verification process: The verification process in NBFCs is less stringent than traditional banks, which makes NBFC bank loans a better option in an emergency.
• Higher loan amount: Banks usually sanction only a certain percentage of the required loan quantum. However, NBFCs approve the complete loan amount without putting any strict restrictions.
• Better customer service: NBFCs are known for offering better customer services to their personal loan borrowers during the approval as well as after disbursal. 
• Minimal paperwork: NBFC personal loans usually require minimal or nil paperwork than the traditional banking sector as the entire process is online.
• Quick approval: Instant loan approval and swift processing time are assured by NBFCs for personal loans.

Top 5 NBFC personal loans in India

Why Opt for Bank Personal Loan?

Due to their highly coordinated and regularized functioning, banks become more trustworthy. Also, the interest rates and processing fees charged by banks are often lower than that of NBFCs.

You can avail personal loan between Rs. 24,000 and Rs. 40 Lakhs from banks. The interest rates on bank personal loans vary between 8.45% to 31.50% p.a. and the repayment can be made within 1 year to 7 years tenure.

Bank personal loans offer the following benefits to the borrowers over NBFCs:

• Competitive interest rates: Banks (especially public sector banks) aim at offering competitive interest rates to the borrowers as they have a huge target audience. You can get a personal loan at as low as 8.45% p.a. interest rate from a public sector bank like Punjab National Bank (PNB).
• Banks can provide high loan amounts: You can get a loan amount of up to Rs. 40 Lakhs under HDFC Personal Loan from banks. The loan amount is dependent on the income, requirement and eligibility of the borrower.
• Easy loan application online: Not just NBFCs, but nowadays, most banks have started offering personal loans online. This instant online personal loan application has made bank personal loans more lucrative.
• Instant disbursal: Many banks offer instant loan disbursal for their existing customers and for online applicants.
• Offers pre-approved loans: Most banks offer pre-approved personal loans to their existing or specific customers. These loans require zero to minimal documentation and are disbursed instantly.
•  Other facilities: Banks offer various other facilities as well, like debit card, credit card, issuing & depositing of cheques or demand draft, ATMs, and so on.
• Huge network: Banks usually have a huge network of branches spread across the country or even outside India. This makes access to personal loans and other credit facilities much easier.
• Existing relationship advantage: Many individuals have an existing relationship with one or more banks, such as having a savings/ current/ salary account, fixed/ recurring deposit, and so on. This relationship can get you concession in the interest rate and/or processing fee.

Top 5 bank personal loans in India

Conclusion

Both NBFCs and banks have their own sets of advantages for personal loan borrowers. While banks are recognised for their low interest rates and processing charges, NBFCs are improving rapidly by giving competitive rates to individuals. If you need funds quickly without much difficulty, NBFCs are a good option.

On the other hand, Banks are a reliable source of funding and offer more competitive rates to borrowers. Banks depositors can also avail the deposit insurance service provided by banks. So, if you want a safer option, you can choose banks. Also, if you have an existing relationship with a bank, getting a personal loan from that bank is more favourable and affordable.