{"id":1993,"date":"2017-10-04T10:42:51","date_gmt":"2017-10-04T05:12:51","guid":{"rendered":"https:\/\/swaritadvisors.com\/?p=1993"},"modified":"2020-11-28T17:46:59","modified_gmt":"2020-11-28T12:16:59","slug":"banks-vs-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/","title":{"rendered":"Difference Between Banks v\/s NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Succeeding in attaining a loan in India is no more a tough task if one meets the eligibility criteria but the key concern among many is to decide whether to choose a bank or NBFC for shopping of loans in India. Banks vs NBFCs Non-Banking Financial Companies (NBFCs) are both financial intermediaries playing somewhat similar roles in the space of financial products. Yet there are large differences between them and the two maintain their distinct identities.&nbsp; Borrowers often wonder which one to approach for their loans and why.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a238b9f7537e\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a238b9f7537e\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#Difference_between_Bank_NBFC\" title=\"Difference between Bank &amp; NBFC\">Difference between Bank &amp; NBFC<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#How_to_pick_one_while_shopping_for_loans_between_Banks_vs_NBFCs\" title=\"How to pick one while shopping for loans between Banks v\/s NBFCs?\">How to pick one while shopping for loans between Banks v\/s NBFCs?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#Interest_Rates\" title=\"Interest Rates\">Interest Rates<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#Credit_Score_Requirements\" title=\"Credit Score Requirements\">Credit Score Requirements<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#Loan_Eligibility\" title=\"Loan Eligibility\">Loan Eligibility<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#Stringent_Paperwork\" title=\"Stringent Paperwork\">Stringent Paperwork<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#Fewer_Rules_and_Regulations\" title=\"Fewer Rules and Regulations\">Fewer Rules and Regulations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/learning\/banks-vs-nbfcs\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Difference_between_Bank_NBFC\"><\/span>Difference between Bank &amp; NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"700\" height=\"627\" src=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2017\/10\/1-1.jpg\" alt=\"Difference between Bank &amp; NBFC\" class=\"wp-image-1999\" srcset=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2017\/10\/1-1.jpg 700w, https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2017\/10\/1-1-300x269.jpg 300w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><\/figure><\/div>\n\n\n\n<p><strong>Major differences with perspective to loan<\/strong><\/p>\n\n\n\n<ul><li>Banks are more stringent when it comes to paperwork, requirements, and eligibility while processing your loan application. Your credit score also needs to be above acceptable levels as well. The upside of going through greater scrutiny is that loan applicants can get lower processing fees and lower interest rates. Banks may also offer discounts to women, which most NBFCs don\u2019t at the moment.<\/li><li>While NBFCs have a faster loan processing time which means applicants can get loan approval and disbursal faster. NBFCs can be more accepting of lower credit scores, and they balance their risks by charging higher interest rates. While taking home loans as well, the paperwork requirements for NBFCs may be less stringent than banks. NBFCs too must be careful to keep their bad debt and NPAs under check since they lend largely to the retail sector largely and not to the corporate sector.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_pick_one_while_shopping_for_loans_between_Banks_vs_NBFCs\"><\/span>How to pick one while shopping for loans between Banks v\/s NBFCs?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>All things considered equal, a loan applicant may find that the repayment tenure and interest rates on offer from banks and NBFCs to be similar. Based on a thorough reading of the loan applicant\u2019s income data, credit history, property documents etc., variations in interest rates and charges may occur.&nbsp; To select between banks and NBFCs while borrowing, the decision may often come down to who offers you the cheapest loan. The lower the interest rate and processing fees, the cheaper the loan.<\/p>\n\n\n\n<p>While choosing between a bank and an NBFC, one should take into account the kind of loan you are seeking. Many <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC Registrations<\/a><\/strong>, for example, offer a host of consumer durable loans allowing for quick processing and easy repayment structure. Banks, on the other hand, may have a larger variety of loan products, such as home loans, car loans, education loans, personal loans etc. The following points could be key differentiators.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Interest_Rates\"><\/span>Interest Rates<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>The rate of interest is one of the main aspects of all types of loans.<\/li><li>Non-Banking Financial Sectors have started to concentrate on this area in recent decades and have brought down the interest rates to either equally to bank lending rates or at times even lower to bank rates. With all the other benefits when a rate of interest is also lowered, borrowers found this more easy and affordable. This has also resulted in lower EMI (Equated Monthly Instalment) for borrowers. Based on the income, a credit scoring ad repayment rate of interest is charged on the borrowers however it is at competitive rates.<\/li><li>Bank loans with floating rates are linked to the MCLR (Marginal Cost of Lending Rate) which are linked to macroeconomic factors such as the RBI-mandated lending rates.<\/li><li>NBFCs and housing finance corporations (HFCs) lend as per the Prime Lending Rate (PLR), which is not regulated by the RBI. And due to this greater freedom to increase or decrease these rates are allowed to NBFCs and HFCs as it fits.<\/li><li>This also suits customers who may sometimes benefit from special, low-interest loans (for instance, zero interest car loans), or high-interest loans just in case they do not meet a bank\u2019s loan eligibility criteria. Which provides NBFCs an edge over banks who cannot lend below the MCLR.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Credit_Score_Requirements\"><\/span>Credit Score Requirements<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>Both NBFCs and banks will offer their best interest rates to customers with high credit scores. However, customers with a lower score (in the 550-700 range) may find loans from NBFCs to be less stringent in terms of eligibility requirements.<\/li><li>Individuals with poor credit rating generally will not get loans from banks. The reason for this is banks consider borrowers are high-risk individuals if the credit scoring is low. Unless the credit score is above 600 -650, it is very difficult to get a loan sanctioned from banks.<\/li><li>Instead, loans will be offered to individuals with low credit score by NBFCs but most of the time the interest rates for such borrowers will be higher than market rates. Due to these aforementioned advantages, most of the NBFCs are growing.<\/li><li>With regard to offering loans, banks and NBFCs will offer business, personal and retail loans. And this is totally on the basis of the repayment capacity of the borrower. Most of the corporate sector prefers banks, however; retails sector chooses NBFCs over banks.<\/li><li>Simple loans such are vehicle financing loans, gold loans, home loans, and durable loans are offered by NBFCs. And customer satisfaction ratio is high here. NBFC sector is also set to expand even further in the coming days. If someone is looking to get a quick loan approved then the first option is NBFCs as banks are more stringent in approving loans.<\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Read, Also:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/a-peek-into-the-future-of-nbfcs-in-india\/\">A Peek into the Future of NBFCs in India<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Loan_Eligibility\"><\/span>Loan Eligibility<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>A more relaxed approach to one\u2019s loan eligibility is available to NBFCs in the amount that may be sanctioned as per one\u2019s repayment capacity, credit score, etc. For example, banks will typically fund up to a certain percentage of one\u2019s home value and would exclude costs towards stamp duty and registration. NBFCs may formulate ways to help customers and will include these extra costs in the loan. This is to the customer\u2019s benefit as one may be able to take on a larger loan.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Stringent_Paperwork\"><\/span>Stringent Paperwork<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>NBFCs have an impressive market share for retail loans. This they\u2019ve been able to achieve through relaxed paperwork and processing requirements. Banks, on the other hand, are more thorough with paperwork.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Fewer_Rules_and_Regulations\"><\/span>Fewer Rules and Regulations<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>As NBFC are under the Companies Act, the rules and regulations for lending are not as stringent as banks. This helps borrowers to get loans easily. And the less complicated loan processing is; borrowers are highly satisfied. But, the risk of evasion is high with NBFC, hence the rates of interest and other charges will be accordingly priced by the NBFC. Even the loan amount approved will be quite lesser than the collateral value. This is due to the high risk of default.<\/li><li>Quick Processing<\/li><li>At banks, it is very vital that the applicant should fulfil the eligibility criteria but NBFC are indulgent in this aspect. This makes loan approval easier, smoother process and quicker.<\/li><li>Most of the times, people apply for a loan when they are in immediate need of money. NBFCs have taken this as an opportunity to meet the demand by quickly processing the loans at a competitive rate of interest. At times, borrowers are even ready to compromise on the interest rates if the loan amount is huge and if they could get it approved quickly.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<div class=\"shadow4\">With regard to offering loans, banks and NBFCs will offer business, personal and retail loans. And this is totally on the basis of the repayment capacity of the borrower.<\/div>\n\n\n\n<ul><li>Most of the corporate sector prefers banks, however; retails sector chooses NBFCs over banks. Simple loans such are vehicle financing loans, gold loans, home loans, and durable loans are offered by NBFCs. And customer satisfaction ratio is high here.<\/li><li>Both banks and NBFCs have their advantages and a final decision must be made keeping in mind the loan type, the interest rates, charges, credit score, and the loan disbursal timelines.<\/li><li>NBFC sector is also set to expand even further in the upcoming days. If someone is looking to get a quick loan approved then the first option is NBFCs as banks are more stringent in approving loans.<\/li><li>Many factors have to be considered before making the decision between the two, such as credit score, the tenure of the loan, loan amount, and the Interest rate. Based on these factors it then becomes easier to pick one of the two while shopping for a loan.<\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/apply-for-nbfc-license\/\">How to Apply for NBFC License?<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Succeeding in attaining a loan in India is no more a tough task if one meets the eligibility criteria but the key concern among many is to decide whether to choose a bank or NBFC for shopping of loans in India. Banks vs NBFCs Non-Banking Financial Companies (NBFCs) are both financial intermediaries playing somewhat similar [&hellip;]<\/p>\n","protected":false},"author":7,"featured_media":1994,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[89],"tags":[975],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/1993"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=1993"}],"version-history":[{"count":10,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/1993\/revisions"}],"predecessor-version":[{"id":16968,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/1993\/revisions\/16968"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/1994"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=1993"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=1993"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=1993"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}