Bank or Non-Banking Financial Company: Which is Better for Loans?

A Bank is the first thing that pops into your mind when searching for a loan. That’s how we have been wired and it seems like a logical choice to go with. But you would be surprised to know that Non-Banking Financial Companies or NBFCs are continuously outperforming banks today. According to the latest Financial Stability Report from RBI, the satisfaction rate of the customers of NBFCs is 15% more than those of banks.

What is an NBFC?

NBFCs are financial institutions that provide the same lending facilities of a bank, but function without a license. Services provided range from personal loans, credit facility, retirement planning, etc.

Comparison Between Banks and NBFCs

Let’s draw the comparison on the basis of certain fronts as follows:

1. Processing Efficiency

Banks: It is crucial for banks that customers fulfill the eligibility criteria on all fronts, including their credit history and CIBIL scores. More often than not, this defeats the whole purpose of borrowing in the first place.

NBFC: NBFCs are quite lenient in this regard and loans are passed more smoothly and efficiently. This serves the purpose of borrowing in the case of an emergency. NBFCs have realized this market potential and serve accordingly.

2. Interest Rates

Banks: The interest rates of banks are in accordance with the regulation of central authorities such as RBI. Hence, they are changed at will and are often high and out of the reach of the common populace.

NBFC: They have brought down the interest rates gradually and they are often at par, and even lower at times, as compared to banks. Such practice also brings down the EMIs for borrowers.

3. Rules and Regulations

Banks: Banks are regulated by the RBI Banking Act. Therefore, a plethora of rules and regulations, including strong background checks are usually involved in the loan process.

NBFC: NBFCs are companies instead of banking institutions and are hence registered under Companies Act. Therefore, all rules and regulations rest on internal companies policies. This makes the loan availing process much easier and less stringent.

4. Credibility

Banks: When it comes to credibility, banks are more credible in the case of a doubtful loan situation. Government regulation gives them an upper hand.

NBFC: These are not regulated and have their own set of rules and regulations. Thus, they may not be relied upon in case of an uncertain situation.

Which One is Better for Short Term Loans: Bank or NBFC?

Non-Banking Financial Institutions prove to be better than banks due to their ease of Instant loan disbursement and less stringent regulations. It is also seen in some cases that even when the rate of interest is higher, customers often opt for NBFCs over Banks due to the lesser complications involved.

NBFCs are also a better choice especially when a short-term loan is to be availed. They prove to be a life-saver for borrowers who have poor credit history due to which they will never be able to avail loans from banks. On the other hand, since such short term loans are offered by companies, there are high chances of availing other benefits such as discounts and offers. Banks are pretty immutable in such matters since they fall under the purview of governance.

Lastly, short-term loans are usually required during emergencies where funds are needed right away and any delay would kill the whole purpose of availing the loan. Since banking processes may take several days to complete, NBFCs prove to be a far better choice since loans can be disbursed immediately, sometimes even in minutes.

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