Loans for personal use are highly sought after among many individuals in India. But choosing between an Non-banking Financial Company (NBFC) and a loan provider has become a huge issue because NBFC Personal Loans have come into the limelight with their more flexible protocols than traditional loan providers.
A notable difference between an NBFC and a loan provider is that NBFCs are registered under the Companies Act, 1956, whereas loan providers are directly accountable to the RBI.
Now let’s compare the two lending institutions so that you get thorough knowledge and approach the right provider for a hassle-free Personal Loan journey!
An NBFC is not your standard loan provider but its financial functions are similar to standard loan providers. NBFCs provide loans and credit facilities, investments, insurance plans, acquisition of shares, bonds, debentures, stocks, securities, etc.
What is a Loan Provider?
These are financial institutions with a loan provider’s licence under the Regulation Act of 1949. They provide the same financial instruments as NBFCs along with terms that need timely payments. They are authorised by government authorities.
NBFCs Vs. Loan Providers: Which Is Better for Availing Loans For Personal Use?
Loan providers were the only financial institutions to get Personal Loans a few years ago. But due to policy changes, NBFCs have gained immense favour among borrowers. Here are some significant factors that separate the borrowing processes of loan providers and NBFCs:
1. Verification Process
Most loan providers have outdated application procedures as they require physical verification to determine an applicant’s legitimacy, making the certification process lengthier.
Nevertheless, that’s not the case with modern NBFCs like Poonawalla Fincorp that have online platforms to verify an applicant’s documents as soon as they enter them for instant processing of loan.
2. Application Process
There is a lot of manual paperwork and time needed for loan providers to process applications for a loan for personal use. But that’s not the case for a loan application in an NBFC. With minimal documentation, the loan gets approved withing hours.
3. Approvals, Restrictions, And Loan Policies
Ideally, loan providers have stringent policies with higher credit rates and income for an individual to qualify for a Personal Loan. Also, it takes roughly a day or two to get your loan approval.
On the other hand, an NBFC doesn’t limit restrictions on lower income and credit scores. Moreover, your loan gets sanctioned in just a few clicks, and the deposit happens within a few hours. This makes many borrowers directly opt for a Personal Loan from an NBFC.
4. Interest Rates
A significant aspect to look out for before getting a Personal Loan is its interest rates, as it determines your Personal Loan EMI. However, there are differences between an NBFC and a loan provider in interest rates.
The RBI dictates the interest rates for loan providers and is subject to change according to the policies introduced. However, this is not the case for an NBFC Personal Loan, as the rates are determined independently. The factors influencing the range are credit score, employment status, age, etc.
- Customer Services
The entire financial sector is categorised under the service sector. However, NBFCs have an upper hand over conventional loan providers for their impeccable customer service.
Partners have a personalised tab, an online portal that includes all their loan details, charges, and payments. Also, you are assigned a separate customer relationship manager (CRM) for a comfortable loan journey.
An NBFC Personal Loan can offer asset reconstruction for individuals and companies: something that is not permitted for loan providers.
- Reserve Ratio
To ensure a deposit’s liquidity, the reserve ratio is mandatory for loan providers as they have to possess specific CRR ratios.
However, since the NBFC is not under the RBI, it’s not necessary to possess a CRR ratio as they don’t have to process the issuance of cheques or demand drafts like the loan provider. This rule is followed by NBFCs that fall under the RBI’s purview.