Personal loans are one of the most common forms of loan in India. It can assist you with a wide range of financial challenges, including medical emergencies, debt consolidation, and more.
However, while looking for the best lender for this loan, borrowers are split on whether to go with a bank or a non-banking financial company. This post will assist you in resolving all of your concerns.
To begin with, let’s start with the basic definitions.
What Is A Banking Institution?
Banks are financial institutions that have been granted a banking license under the Banking Regulation Act of 1949. Banking institutions have the option of accepting both term and time deposits. They also have the authority to approve a variety of loans.
What Is A Non-Banking Financial Institution?
A non-banking financial institution (NBFC) is registered under the Companies Act, 1956. This form of financial institution can accept time deposits, provide loans, and engage in the insurance business, among other things.
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NBFC vs Bank: Which Is Better?
Now that you have a fundamental understanding of the definitions, let’s look at the significant differences between them one by one.
1. Eligibility Criteria
The eligibility standards for personal loans from banks and NBFCs differ significantly. In comparison to NBFCs, banks have more severe qualifying requirements.
For example, when comparing the minimum age, income standards, and work experience, all of these factors will be slightly tighter in banks.
If you want to apply for a personal loan through an app, below is a list of the eligibility requirements for most NBFC lenders.
- Occupation: Salaried and self-employed both can apply for this loan using a loan app.
- Age: Whether you are salaried or self-employed, the lender will sanction this loan if your age is between 21 and 58 years.
- Minimum Income: NBFCs require you to have a monthly income of at least Rs 15,000.
2. Verification Process
Several banking organizations still use a manual process and physical verification to determine whether or not an applicant is legitimate. But, this is not the case with NBFCs. NBFCs are investing extensively in cutting-edge technology. They are coming up with a digital lending platform that verifies your information and documents as soon as you share them.
3. Approval Process
There are many traditional banking institutions that are reliant on outdated technologies. And due to this, the whole loan process becomes time-consuming. Traditional bankers may take a few days to even months to let applicants know if they qualify for a loan or not.
However, if you apply with an NBFC, you can expect an immediate personal loan approval within minutes. And, if you use the NBFCs online loan app to apply for a personal loan, the approval time is only about 20 seconds.
This is due to the fact that online loan apps are equipped with a variety of cutting-edge technologies. Machine Learning and Artificial Intelligence are two of them. In addition, it also uses the Alternative Credit Decisioning (ACD) Model.
These technologies retrieve your data within seconds from your details and documents and analyze the risk connected with your profile. It will also inform you of how much loan amount you are eligible for.
4. Application Process
NBFCs have a much simpler loan application process than banking institutions. Most traditional bankers expect personal loan applicants to come into the branch in person, fill out a lengthy offline application, and submit a stack of paperwork.
The entire procedure takes time, and you may need to visit a branch office multiple times to complete tasks such as signing a loan agreement form, submitting papers, and so on.
On the other hand, choosing an NBFC’s online loan app makes the procedure easier. Here are the steps that you need to follow to initiate your application.
- Get the app from the Google Play Store.
- Provide basic information such as your name, city, and contact information. On the provided contact number, you will receive an OTP. To finish the sign-up process, enter the same.
- Use an EMI calculator to figure out how much you can afford to repay. You must also use the loan eligibility calculator to determine whether you are eligible for the loan.
- Fill out the online form and upload your basic documents such as income proof, address proof, and identity proof.
- You must also upload your banking details of the account where you want the funds to be credited.
Non-banking financial institutions (NBFCs) have a major advantage over banking institutions when it comes to personal loans. The quick loan approval, simplified application process, and minimum eligibility criterion make it a popular choice among borrowers.