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Should You Choose NBFCs or Banks for a Personal Loan?

Published on Aug 9, 2019Updated on Jan 29, 2024

Should You Choose NBFCs or Banks for a Personal Loan?

Personal loans are not just the preferred form of borrowing for individuals; they are also a preferred form of lending for financial institutions today.

And with increased preferences given to those who apply for a personal loan, many are spoilt for choice.

Personal Loan Disbursed By Banks & NBFCs

Cr NBFC PVT Bank PSU Bank Year-TOT
FY16 18,009 83,259 55,070 1,56,338
FY17 22,162 95,599 89,183 2,06,944
FY18 47,428 1,24,661 1,23,206 2,95,295
FY18-19* 69,517 1,44,177 1,32,222 3,45,916

A decade ago, private and public sector or informal lenders were all that you had when you wanted a loan. Things have changed significantly with NBFCs, even though late entrants to the lending game have made considerable progress in the last 10 years. Take a look at this lending data sourced from credit bureaus from FY16 to FY18-19 until September 2018.

As a borrower, you may be confused as to what type of financial institution is best for you to apply for a personal loan. Should I take a person loan from a private bank or a public sector bank? What about an NBFC? Should I approach a fintech?

In this article, we’ll help you decide the best place to get a personal loan. For the sake of brevity and to avoid overwhelming you with too much information, we will focus on the two major types of financial institutions: Banks and non-banking financial corporations (NBFCs).

Eligibility of NBFC Personal Loan

Those who meet specific eligibility requirements can obtain personal loans from NBFCs. These requirements may differ significantly depending on the NBFC, but some common factors include age, income, credit score, ,employment status, etc.

Applicants must be at least 21 years old and no older than 60 years old at the time of loan maturity. The minimal income criterion may also vary; however, candidates should generally have a consistent source of income and meet the NBFC's income criteria. A solid credit score of 750 or above is required to qualify for a personal loan because it reflects the borrower's capacity to appropriately manage the repayment. Certain NBFCs may additionally require applicants to be employed for a specified period of time, usually at least six months. When applying for an NBFC personal loan, it is critical to review the NBFC's specific eligibility criteria to ensure that you meet all of the requirements.

Benefits of NBFC Personal Loan

NBFCs provide personal loans, which might be an ideal choice for people who need funds quickly. Unlike traditional lending institutions, NBFCs have more flexible lending standards and can provide personal loans to those with decent credit scores. Also, you can use a personal loan for any application you need, from medical emergencies to travel requirements, from wedding finances to home loan down payments.

NBFCs may also provide personal loans with more flexible repayment terms, such as longer repayment durations, affordable interest rates, and no prepayment penalties. These advantages can make personal loans from NBFCs an appealing alternative for people who need money urgently. Overall, NBFC personal loans might be a great solution for those who require quick access to finances and prefer more flexible payback terms.

Must Read: Why Prefer Reputed NBFC as Personal loan provider

Difference Between Banks & NBFCs

Non-Banking Financial Company

Bank

These are businesses that can give out financial support to individuals in need as loans without being licensed as a bank.

A bank is an official body under the Reserve Bank of India which has the license to give out loans.

NBFCs do not take deposits.

Banks work on keeping deposits and giving interest on them.

Eligibility criteria are generally more relaxed.

Because eligibility criteria are more strict for loans from banks, interest rates are lower.

NBFCs are bound by the rules set by the Companies Act.

Banks are bound by the rules set by the Banking Regulation Act.

Demand deposits cannot be accepted.

Demand deposits can be accepted.

No overdraft facility is provided by NBFCs.

Overdraft facility is provided by banks.

NBFCs cannot issue a cheque on their own.

Banks can issue cheques independently.

Must Read: What is an NBFC? What Are The Different Types Of NBFCs?

Why You Should Apply for a Personal Loan with an NBFC?

As a borrower, you have several advantages of taking a personal loan from an NBFC compared to a bank. Here are two major ones.

Faster Processing

Most banks are tied by legacy processes, rules, regulations and guidelines set forth by the RBI to assess eligibility for personal loans. From the moment you apply for a personal loan, they have to follow various rules to assess eligibility, documentation, creditworthiness and then finally to approve and disburse the loan. It can easily take 1-2 weeks for you to receive the money in your account.

Must Read: How To Apply For a Personal Loan

On the other hand NBFCs are known for faster loan processing and approval because they have more room for being flexible with norms. Typically, an online SMFG India Credit personal loan can be approved within a few minutes if you meet all the personal loan requirements. You can easily apply for personal loan from the comfort of your home.

Less Stringent with Credit Scores

It’s very difficult to get a personal loan with a bank if your CIBIL credit score is below 700. In fact, due to bad loans piling up, some banks have become even stricter and don’t even consider anything less than 750. Meanwhile, NBFCs are not rigid in assessing your creditworthiness just on the basis of your credit score. You can still have a fighting chance with a credit score of 600-650, though the loan may cost a little more than expected.

Some forward thinking NBFCs and Fintech companies are now looking beyond credit score and credit history to assess a loan applicant. They are using artificial intelligence (AI), machine language (ML) and social media quotient to assess an individual’s creditworthiness. NBFCs will be the first to adopt these new age lending techniques and processes compared to banks.

Why Choose SMFG India Credit Personal Loans?

Now that you know that NBFCs are a better choice for personal loans. Know that it’s also important to select the right NBFC to apply for a personal loan. Go beyond interest rates and processing fees, and look at the customer service, rating, processing speed and credibility of your lender.

You can rely on SMFG India Credit for your personal loans as it is one of the leading NBFCs in the country, awarded the Retail NBFC of the Year by Outlook magazine for two consecutive years in 2017 and 2018. With flexible terms and attractive interest rates, you can apply for a personal loan up to 20 lakh with tenure of up to 60 months with SMFG India Credit personal loans.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

FAQs

Is it better to take a loan from a bank or NBFC?

NBFCs offer personal loans, which may be an excellent alternative for customers who require funds urgently. They have more flexible lending conditions and can issue personal loans to those with good credit scores.

Why do people prefer NBFC over banks?

Customers may choose NBFCs over banks since they have more flexible lending criteria. Furthermore, because NBFCs process loan applications faster and provide more tailored services than traditional lending institutions, they may be a more appealing option for some borrowers.

What are the advantages of NBFC?

NBFCs have a number of advantages, including more flexible lending criteria, faster loan processing times, and a wider range of financial products and services. Furthermore, NBFCs frequently provide more personalised services than traditional banks, making them an appealing choice for people who need funds quickly.

Can NBFC give personal loans?

Yes, personal loans are available through NBFCs. In fact, NBFCs like SMFG India Credit are one of India's major providers of personal loans, offering a variety of loan packages with flexible repayment durations, rapid processing times, and competitive interest rates.

What are the primary differences between an NBFC and a Bank?

The primary difference between an NBFC and a bank is that an NBFC cannot accept deposits that are payable on demand. Unlike banks, NBFCs are not allowed to issue self-drawn cheques or demand drafts. NBFCs are primarily established to provide loans to individuals and businesses who have limited access to credit, while banks are authorized by the government to accept deposits and provide credit to the general public.

Is money safe in NBFC?

Non-Banking Financial Companies (NBFCs) are financial institutions that offer various financial services like loans and insurance. NBFCs are not banks, but they are regulated by the Reserve Bank of India (RBI). The safety of your money in an NBFC depends on the credibility and reputation of the NBFC. One such reputed NBFC in India is SMFG India Credit. However, it's still essential to do your own research and make an informed decision before choosing any lender.

Is NBFC controlled by RBI?

The Department of Non-Banking Supervision (DNBS) is concerned with the regulation and supervision of Non-Banking Financial Companies (NBFCs) under the regulatory requirements of the Reserve Bank of India Act, 1934, Chapters III B and C, and Chapter V.

How much loan can a NBFC give?

The amount of loan that an NBFC (Non-Banking Financial Company) can provide is determined by several criteria, including the borrower's credit score, income, repayment capacity, and loan type. SMFG India Credit provides personal loans ranging from INR 50,000 to INR 25,00,000*, as well as business loans of up to INR 5 crores*. T&C apply.

What is the processing fee for an NBFC loan?

The processing fee for an NBFC loan varies according to the loan type, loan amount, and lending firm policies. On personal loans, SMFG India Credit charges processing fees of up to 6% of the loan amount.

What is the penalty for NBFC?

Borrowers may be penalized by NBFCs for a variety of reasons, including late payment or prepayment of the loan. On personal loans, SMFG India Credit charges a prepayment penalty of up to 7% of the loan amount.

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