How are NBFCs Changing the Rules of Housing Finance in India
Increasing number of borrowers now prefer NBFCs over banks for their home loans. While traditional banks have always been the go-to option for loans, why are people now switching to NBFCs? Read this post to know how NBFCs are transforming home loans in India.
Home loans now play a crucial role in helping people achieve their dream of buying a home. The borrowing process is now simpler than ever, and if you meet the eligibility criteria of the lender, you can get a home loan to purchase your dream home. But while traditional banks were the go-to option for home loans in the past, many of the new borrowers now prefer taking a loan from NBFCs.
Non-Banking Financial Institutions or NBFCs are financial institutions which work exactly like banks but do not have a full banking license. In the past few years, NBFCs have started performing better than banks with several borrowers preferring them for their loan requirements. They have significantly transformed home loans in the country and have made them better, more convenient, and affordable for the borrowers.
Five ways in which NBFCs are transforming home loans in India are as follows-
- PLR-based home loans
While banks have now switched to MCLR (Marginal Cost of Lending Rate) from their previous base rate loan regime to provide borrowers with the benefit of rate cuts from RBI, the PLR (Prime Lending Rate) regime of NBFCs generally proves to be cheaper.
NBFCs are yet to be supervised by RBI, and they get to fix this PLR on their own on the basis of sales.
- Additional expenses included in the loan amount
Most banks in India offer loans of up to 80% of the value of the property. The remaining 20% needs to be paid by the borrower. But apart from this 20%, there are also additional expenses like registration, stamp duty, etc. which borrowers need to pay from their pocket when taking the loan as banks do not include these expenses when evaluating the cost of the property.
On the other hand, NBFCs do cover these expenses as part of the market valuation of the property to allow borrowers to borrow a larger amount and easily manage these extra costs.
- Loan availability for low credit score borrowers
Banks lay major emphasis on the credit score of the borrowers to approve or reject their loan application. If a bank has denied your loan application due to low credit score, an NBFC might accept your application.
The credit score requirements of NBFCs are not as stringent as banks, making them an ideal choice for people with low credit. However, borrowers with weak credit scored are generally required to pay higher interest.
- Reduced documentation
When taking a home loan from a bank, you are required to submit many different types of documents along with your loan application. The whole process of collecting and submitting these documents as per the exact requirements of the bank can be very time-consuming and daunting.
However, NBFCs are very popular for their minimal documentation requirements. As the eligibility criteria are not as stringent as banks, even the documents required for loan approval are generally fewer.
- Faster processing
As the document requirements are not as stringent as banks, even the loan approval and processing by NBFCs is faster. Most of them now have online portals to apply for home loans and make the whole process of takinghousing finance in India quick and convenient.
While banks can take several weeks to process the loan and disburse the loan amount, NBFCs can do the same within days if you are eligible and have the correct documents.
While NBFCs have been around for a long time, it is only in the last few years that people have started considering them for taking a home loan. They have significantly improved their offerings to provide more benefits to the home loan borrowers and help them achieve their dream of buying a home of their own.