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Bank Loan Vs Nbfc LoanImage Credit source: ai generated

Bank Loan vs NBFC Loan: No one knows when there will be a sudden need for money in life. In such a situation, the first thought that comes to mind is to take a loan from the bank. But nowadays the mood of the financial market has changed. Now not only traditional banks, but also non-banking financial companies (NBFCs) are distributing loans rapidly. These companies are providing instant money for everything from personal loan to business expansion. As a customer, it is natural to be confused about where to take a loan. Is it safe to approach a bank or would it make more sense to borrow money from an NBFC? Let us understand what is the basic difference between these two so that you can take the right decision.

There is a big secret hidden in the way of working

It is most important to understand the way financial institutions work. Banks are fully regulated institutions. Their main job is to collect money from the general public and then release the same amount in the market in the form of loans. The money in your savings, current or fixed deposit account is the real strength of the bank. Due to the security of depositors' money, the rules of the Reserve Bank on banks are very strict. On the other hand, NBFCs also disburse loans but they have no right to take demand deposits (money in savings or current accounts) from the general public. For this reason, there are fewer regulatory restrictions on them as compared to banks.

Your decision will decide the speed of getting loan

When money is in dire need, no one wants to wait for months for the loan to be approved. Both have their own methods in the matter of approval. Taking a loan from a bank can sometimes seem like chewing iron. Here your documents, income, bank statements and credit history are examined very closely. If the job is new or the CIBIL score is even a little wavering, banks do not waste time in rejecting the file. In contrast, NBFCs adopt a very flexible approach on this front. Even if you run your own business, your credit score is not great or you are taking a loan for the first time, there is still hope of getting money from here. Due to heavy use of digital technology, the process of disbursing their loan is quite fast.

It is very important to understand the mathematics of interest rates.

While taking a loan, the first thing every customer looks at is the interest rate. Generally the interest rates of banks are cheap. Its simple mathematics is that banks have public deposits, due to which they get money at very low cost. At the same time, NBFCs have to raise funds from the market at expensive prices. Obviously, they will pass the burden of this increased cost on the EMI of the customers. Therefore their interest is a bit expensive. But, just looking at the interest rate is not enough before reaching any conclusion. You should also carefully assess the terms and conditions like processing fees, late payment charges, foreclosure penalty etc.

The perfect formula for choosing the right option

Where should you go as a customer? The decision completely depends on your profile and time of need. NBFCs provide flexible EMI repayment options to customers, which sometimes prove to be a big relief. On the other hand, apart from loans, banks provide many other facilities like credit cards, insurance, investments etc. under one roof, due to which customers have more trust in them. If all your documents are in order, credit score is excellent, you are not in a hurry to get money, then the bank is the best deal for you. But if you need funds in an emergency and you do not fit into the strict rules of the bank, then NBFC can prove to be a great help for you. Wherever you take a loan, first calculate your repayment capacity.

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