What to Choose Between Banks and NBFCs for Your Home Loan
If you are looking for a home loan and have fallen into a dilemma about whether to choose a bank strictly regulated by the RBI or NBFCs (Non-Banking Financial Companies), then this article is for you. In this blog, we will talk about all the aspects of a bank and an NBFC that you need to look at while applying for a home loan from their institution.
We will also talk about how the repo rate affects home loans, the advantages and disadvantages of loans from banks and NBFCs, and whether it is safe to take a home loan from an NBFC.
What is a Repo Rate?
The repo rate is like the interest rate, but for banks only. The repo rate is a standard interest rate charged by the RBI when the bank or any financial institution lends money from the RBI.
Latest News on Repo Rate
In February 2023, the repo rate increased to 6.5%, and it has remained the same until now in 2025. This means home loan EMIs became costlier for both new and existing borrowers. Experts believe this increase might delay property purchases, as people may need to either increase their EMI tenure or pay more money each month.
Top Banks and NBFCs for Home Loans
Here’s a list of popular banks and NBFCs offering home loans:
Best Banks For Home Loan
• State Bank of India (SBI)
• HDFC Bank
• ICICI Bank
• Axis Bank
• Kotak Mahindra Bank
Best NBFC for Home Loan
• LIC Housing Finance
• Tata Capital Housing Finance
• IIFL Home Loan
• PNB Housing Finance
• Godrej Housing Finance
NBFC vs Bank : Main Differences
Banks and NBFCs both provide home loans, but they operate differently. Here’s how:
Advantages of Taking a Home Loan from a Bank
1. Lower Interest Rates
Banks offer interest rates linked to the repo rate, so they are usually lower than NBFCs.
2. Overdraft Facility
Banks allow borrowers to deposit extra money in an overdraft account. This reduces the loan principal and saves on interest.
3. Higher Loan Amount
Banks can finance up to 90% of your property’s value.
Disadvantages of Taking a Home Loan from a Bank
1. Strict Credit Score Requirements
You need a CIBIL score of 700 or above to qualify.
2. Complex Documentation
The process is lengthy and may delay loan approval.
3. Additional Charges
Banks don’t include fees like stamp duty in the loan amount, increasing costs for borrowers.
Advantages of Taking a Home Loan from an NBFC
1. Relaxed Credit Requirements
NBFCs are more lenient with credit scores and can approve loans for people with poor scores, although at higher interest rates.
2. Quick Loan Disbursement
NBFCs process loans faster, often within 72 hours, which is helpful in urgent situations.
3. Simpler Documentation
Unlike banks, NBFCs require fewer documents, making the process hassle-free.
Disadvantages of Taking a Home Loan from an NBFC
1. Higher Interest Rates
NBFCs usually charge more than banks, which increases your total repayment.
2. No Overdraft Facility
Unlike banks, NBFCs don’t offer the option to deposit extra money to reduce loan interest.
3. Limited Services
NBFCs cannot accept deposits or issue cheques.
Is It Safe To Take Home Loan From NBFC ?
Yes, it is generally safe to take a home loan from an NBFC, as they are regulated by the RBI for certain activities. However, their interest rates and terms are not as strictly controlled as banks.
Why NBFC is Better than Bank for Some Borrowers ?
If your credit score is low or you need a loan urgently, NBFCs are a better choice. NBFCs also have flexible terms, making it easier for self-employed individuals to get a loan.
Home Loan from NBFC vs Bank: Which Should You Choose?
If you have a good credit score (700+) and meet the bank’s eligibility criteria, choose a bank for lower interest rates and additional benefits like the overdraft facility. If your credit score is low or you need quick approval, an NBFC is a better option despite the higher interest rates.
Conclusion
Both banks and NBFCs have their pros and cons. Your decision should depend on factors like your credit score, urgency, and loan amount. For those with a good credit history, banks are the ideal choice. But if you face challenges like poor credit or documentation issues, NBFCs can be a lifesaver.
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