How to Choose the Best NBFC for a Personal Loan?

What are your mega plans for this summer vacation—a family trip abroad or home renovation? Whatever it is, a personal loan will help you in achieving your goals with the least financial strain. Over time, personal loans have become one of the most reliable financial products, serving as a companion in both good and bad times. While going ahead with this loan product could be an easy decision to make, choosing between a bank and an NBFC for a personal loan, and picking the best NBFC loan company could be tricky. Therefore, to help you make an informed decision, today, we will look at NBFC vs. Bank for a personal loan and things to keep in mind while choosing the best personal loan non-banking financial institution in detail.
 

What is an NBFC?

NBFCs are registered under the Companies Act of 1956 and 2013. As per this Act, NBFCs are allowed to provide services such as loans and advances services, selling of bonds, stocks, securities, and so on. It is the responsibility of the RBI's Department of Non-Banking Supervision (DNBS) to supervise and regulate the NBFC loan companies. 

Points to Consider When Choosing the Right Personal Loan Lender

 

Personal Loan Interest Rates

When picking the right NBFC loan company for personal loans, keep the interest factor in mind. The minimum and maximum interest rate range differs from one lending institution to the next. Remember, even a marginal difference in the interest rate can significantly alter your EMI and increase your interest burden.
 

Loan Amount

When you decide to obtain a personal loan from a non-banking financial company, make sure the NBFC you are choosing provides an adequate loan amount. If you need funds in parts and want to pay interest only on the amount that you have utilised, check if the lender provides the Flexi personal loan. 
 

Loan Terms and Conditions

Before finalising the personal loan non-banking financial company, make sure you get in touch with NBFC existing customers. Existing customers can help you in understanding the lender's repayment flexibility, prepayment option, rescheduling option etc. You can also inquire directly with your preferred lender executive about their personal loan terms.
 

Processing Fees

Processing fees have a minimum bearing on your budget, but if you can save some money on them, then why not? Compare processing fees of different NBFC loan companies using a loan aggregator website. You must also evaluate the other costs involved in pre and post loan disbursement.
 
 

Prepayment Options

When applying for a personal loan from an NBFC, make sure to see if the lender you choose provides a prepayment option. And, if there is an option to foreclose the loan, don't forget to ask about the foreclosure charges. 
 

Add-on Benefits

When applying for a personal loan from non-banking financial companies, check if your selected lender provides any additional benefits. By add-on benefits, we mean top-up option, interest discount on any other loans, etc. 
 
Also Read: A Step-by-step Guide to Getting Unsecured Personal Loans
 
 

Why Should You Choose NBFC over Banks for Personal Loans?

 

Quick Processing

In recent years, a growing number of people have turned to NBFCs for personal loans. Do you know why? Because non-banking financial institutions, unlike traditional banks, provide instant loan approval, sometimes within five minutes. Apart from approval, the disbursement process in NBFCs is also speedier than in banks.
 

Minimal Paperwork

Unlike banks, you do not require a heavy set of papers for loan processing and approval. Since the modern-day NBFCs use AI, ML, and ACD approaches, all of these aid non-banking institutions in more efficient risk profiling with the bare minimum of documentation.
 

Competitive Interest Rates

When talking about NBFC vs. Banks, the personal loan interest rate is one of the most noticeable factors. The interest rates offered under NBFC loans are more competitive than banks. Since NBFCs' base rates are determined by prime lending rates rather than repo rates, they have some liberty in offering better rates to their loyal customers. Banks, on the other hand, are exempt from this because their base rates are regulated by the Reserve Bank of India.
 

Less Stringent with Credit History

Even if your credit score is ordinary or you have little or no credit history, most NBFCs will not let you down. This is because the NBFCs risk profiling approach does not just rely on credit score and history. They also factor in several other aspects including your account’s transaction patterns, your ITR, and a few others. Their holistic approach towards credit evaluation gives them an edge over traditional banks. 
 

Better Assistance

Whether it is related to form filling, documents collection, or solving any queries, NBFCs always provide superior handheld support to the customers. However, in banks, individuals who hold an account (savings or current) with one of the bank's branches are given priority over non-regular customers.
 

Option to Apply Online

Another advantage that NBFCs have over banks is the option to the customer to apply from the comfort of their homes. Several banks still follow traditional forms of lending and believe in tedious paperwork. 
 

Fluid Rules and Regulations

NBFCs are registered under the Companies Act. Whereas, with banks, the RBI has complete involvement in their day-to-day activities. The non-stringent policies and simple approaches help customers to receive personal loans with ease. 
 

Difference Between NBFC and Banks

 

Parameters	NBFC	Bank
Registration	NBFCs are registered as per the rules and regulations laid down under the Companies Act, 1956.	Banking institutions are registered in accordance with the rules and regulations prescribed under the Banking Regulation Act of 1949.
Services Offered	NBFCs are allowed to provide services such as loans, stock and securities dealing, and so on. However, they are not permitted to accept demand deposits.	Banks are allowed to offer both lending and demand and fixed deposit services.
Reserve Ratio	Since NBFCs do not accept demand deposits, they are not required to maintain the cash reserve ratio.	Banks are required to maintain a CRR of 4% to meet the sudden cash demand.

 
Also Read: The Top 6 Reasons Why Should You Apply for a Personal Loan
 
To Conclude
 
Getting a personal loan from an NBFC is super easy. Since there are so many reputable non-banking financial institutions in the country, selecting the best one by following the above tips makes choosing a lender much easier. Also, when you apply for a personal loan from an NBFC instead of a bank, you can get a competitive interest rate, quick approval, and more flexible terms and conditions.
 

Frequently Asked Questions

What are the key differences in customer service between NBFCs and banks?
The customer service difference between NBFC and bank lies in the breadth of services offered and the accessibility of branch networks, favoring banks due to their comprehensive offerings.