NBFC vs Bank: Which One to Choose for Personal Loans?

Posted on Tuesday, June 4th, 2024 | By IndusInd Bank

When it comes to personal loans, it is common for someone to avail one from a bank. NBFCs can also offer these types of loans. However, some parts of the process differ from banks.

Let’s understand first what NBFCs are, key differences between NBFC’s and Banks,  and which one is a better choice for you.

What is an NBFC?

An NBFC (Non-Banking Financial Company) is a financial institution that provides banking services without meeting the legal definition of a bank. The full form suggests that NBFCs are not banks. Like banks, the RBI regulates NBFCs, but the latter do not hold a banking license. They offer services like loan provision and credit facilities, retirement planning, investing, and wealth management.

Key Differences Between Banks and NBFCs

Here are some fundamental differences between banks and NBFCs:

Advantages of Choosing a Bank for Personal Loans

Here are some of the advantages a personal loan from a bank can offer.

• Lower Interest Rates: Banks generally offer personal loans at lower interest rates compared to NBFCs, making them a more cost-effective choice in the long run.
• Wider Range of Services: Along with personal loans, banks provide a comprehensive range of financial services, which include savings accounts, insurance, and investment options.
• Regulatory Security: Banks are strictly regulated by the RBI, ensurings a higher level of security for your financial transactions.

When to Choose a Bank for Personal Loan

It is ideal for you to choose a personal loan from a bank in the following cases:

• Stable Employment: Banks are more likely to offer better terms if you have a stable income and a good credit score.
• Longer Tenure: Banks are often more accommodating of borrowers looking for longer repayment tenures.
• Lower EMI: Use a personal loan monthly EMI calculator to determine if banks might offer lower EMIs due to lower interest rates.

Advantages of Choosing an NBFC for Personal Loans

If you choose an NBFC for personal loan requirements, here is what you may experience.

• Faster Processing: NBFCs are known for quicker loan approval and disbursement processes. It is ideal for those who need instant loans.
• Flexibility: NBFCs often have more relaxed eligibility criteria, which makes them accessible to a broader range of customers, including those with lower credit scores.
• Innovative Products: Many NBFC loan products are tailored to specific needs, such as small business loans, education loans, and more.

When to Choose an NBFC for Personal Loan

Some occasions when you can opt for a personal loan from an NBFC are as follows:

• Urgent Need for Funds: If you need an instant loan, NBFCs can provide faster approval and disbursal.
• Credit Challenges: NBFCs may approve your loan application even if you have less-than-perfect credit scores.
• Less Documentation: If you want a loan with minimal paperwork, NBFCs are generally more lenient.

Also Read: Instant Personal Loans: A Convenient Answer to Your Financial Requirements

Personal Loans from Banks vs NBFCs

How to Decide?

Here are the factors to consider when deciding between personal loans from banks or NBFCs.

• Interest Rate Sensitivity: If lower interest rates are crucial to you, a bank might be the better choice.
• Speed of Disbursal: If there is an immediate financial need, NBFCs can offer funds quickly.
• Credit Score: Those with lower credit scores might find getting approval from an NBFC easier.
• Loan Amount and Tenure: If you need a higher loan amount or longer tenure, banks generally offer more favourable terms.

A personal loan monthly EMI calculator is a useful tool to estimate your monthly payments based on the loan amount, interest rate, and tenure. It helps you plan your finances better and make decisions based on your repayment capacity.

IndusInd Bank offers personal loans to suit your requirements. With it, you can experience financial freedom without the burden of debt.

Apply now!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.