When a financial emergency arises, we choose a lender that can swiftly transfer the funds we require, even if the conditions are less favourable. For all of our borrowing requirements, we generally turn to banks or non-banking finance companies (NBFCs).
As a borrower, you may be unsure which option is best for you. CarJasoos provides a detailed review of the car loans given by banks and NBFCs in this article.
NBFCs vs. Banks
- Customers can get financial services from both banks and non-banking finance companies (NBFCs). It’s crucial to highlight, however, the main distinctions between the two financial institutions. The Reserve Bank of India regulates banks, which are incorporated under the Banking Companies Act.
- An NBFC is a financial firm that is registered under the Companies Act of 1956. In many ways, an NBFC is not regulated by the RBI. NBFCs are unable to provide services such as demand deposits, checks, and draughts.
- Banks are participants in the payment and settlement system, allowing account holders to transfer and receive money. NBFCs are unable to help their clients with this.
In all forms of car loans, the rate of interest is critical. Bank interest rates are tied to the Reserve Bank of India’s statutory Marginal Cost of Lending Rate, or MCLR. As a result, banks are restricted in their ability to raise or lower interest rates.
Because NBFCs are not subject to the RBI’s regulations, they are free to set their own interest rates. This allows NBFCs to establish their own terms and conditions.
Unlike banks, NBFCs do not provide a wide range of lending products and operate from fewer locations. Because NBFCs place a great priority on profitability, interest rates are likely to be higher. However, with less paper wrapping, the loan approval rate is greater.
Criteria for Eligibility
- Both banking institutions evaluate applicants’ credit ratings and repayment capabilities. Banks, on the other hand, have strict qualifying standards for loan applications based on lending rules.
- NBFCs, on the other hand, take a more flexible approach to lend money. In the instance of a house loan, NBFCs factor in additional charges such as stamp duty and registration fees for the advantage of their consumers.
- Identity proof such as Permanent Account Number (PAN) Card, Passport, Driving License, etc.
- Address proof such as Voter ID Card, Passport, etc.
- Age proof
- Car documents
- Income proof such as 3 months’ salary slips, 6 months’ salary bank account statement, latest income-tax return, etc.
Banks enable you to store a surplus amount in your account that will be deemed pre-payment for your loan when your loan amount is large. The advantage of this facility is that the interest rate will be computed only for the balance loan amount, lowering your debt load significantly. The borrower can also withdraw money from the parked funds as needed, subject to interest rate changes.
NBFCs do not offer overdrafts, which is an area where banks outperform NBFCs.
A strong credit score provides you with an advantage when it comes to getting favourable loan conditions from both companies. NBFCs, on the other hand, are less strict about credit scores than banks. An applicant with a poor credit score is more likely to acquire a loan from an NBFC than from a bank, which may seem impossible.
Choosing the best one for you is based on a number of variables. Some of the factors to be examined in a loan application include loan eligibility, rate of interest, credit score, repayment ability, EMI, and duration.
Obviously, the ideal option is to go with the lender that offers the cheapest loan with the best terms. Though banks are strict in their application processes, if you have a good credit score and meet the qualifying conditions, you may get a lot of perks. Furthermore, women are eligible for special bank loan concessions.
Not to mention, NBFCs are growing more competitive with banks and offering enticing deals to attract new customers. Approaching an NBFC for a fast loan is a realistic alternative if you are in dire need of cash. It is ultimately up to you to select the appropriate lender. Consider all of your alternatives, as well as your future financial goals, before selecting a lender.
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