Need a loan… should you take a loan from a bank or an NBFC, where can you get the cheapest and quickest money?
People often go to banks when they need money. But now, NBFCs are also increasingly offering loans. While banks offer lower interest rates, their rules are strict. On the other hand, NBFCs offer quick, hassle-free loans at slightly higher interest rates. Find out which option is right for you based on your needs.
Bank Loan vs NBFC Loan: No one knows when you might suddenly need money. In such a situation, the first thought that comes to mind is to take a loan from a bank. However, the financial market has changed.
Now, not only traditional banks, but also non-banking financial companies (NBFCs) are rapidly disbursing loans. These companies are providing instant funds for everything from personal loans to business expansion.
As a customer, it's natural to be confused about where to get a loan. Is it safer to approach a bank or would it be more prudent to borrow money from an NBFC? Let's understand the fundamental differences between the two so that you can make an informed decision.
The big secret is hidden in the way of working
It's crucial to understand how financial institutions operate. Banks are fully regulated entities. Their primary function is to collect public deposits and then lend them to the market. The money in your savings, current, or fixed deposit accounts is the bank's primary source of power.
To protect depositors' money, the Reserve Bank of India (RBI) imposes strict regulations on banks. On the other hand,
NBFCs also disburse loans, but they are not authorized to accept demand deposits (money held in savings or current accounts) from the public. Consequently, they are subject to fewer regulatory restrictions than banks.
Your decision will determine the speed at which you receive the loan.
When in dire need of money, no one wants to wait months for a loan to be approved. Both have their own methods when it comes to approval. Getting a loan from a bank can sometimes seem daunting.
Here, your documents, income, bank statements, and credit history are scrutinized meticulously. If you're new to a job or have a slightly weak CIBIL score, banks won't hesitate to reject your file.
In contrast, NBFCs are much more flexible on this front. Even if you're self-employed, have a low credit score, or are borrowing for the first time, there's still hope for funding. Due to the extensive use of digital technology, their loan disbursal process is significantly faster.
It is very important to understand the mathematics of interest rates.
The first thing every customer looks for when taking a loan is the interest rate. Banks generally have lower interest rates. The simple logic behind this is that banks have public deposits, which allow them to obtain funds at a very low cost.