When faced with an unexpected expense, one always chooses for a personal loan. A Personal loan provides lump sum funds that can be used for virtually anything: getting a new bike, covering a medical emergency, going on a much-needed vacation, or getting a new phone.
The mind often runs after 2 main types of lenders: Traditional banks and Non-Banking Financial Companies (NBFCs). Both of them have their own listed advantages, rules & regulations, audience, and challenges. Therefore, it becomes necessary to understand both and make the right decision.
Banks offer various financial services other than loans. They are often considered a go-to place for those with solid credit scores who can meet the strict banking eligibility criteria. They offer lower interest rates as they have huge funds, primarily from customer deposits. This makes bank loans more trustworthy to those who choose speed over convenience.
Personal Loans from NBFCs specialise in bridging the gaps left by banks. It offers services to customers with less-than-perfect credit scores or those who are in need of instant funds. NBFCs’ ability to provide loans faster makes it attractive for consumers who are unable to meet banking criteria.
Choosing the right option for you The table below mentions a respectful distinction between Banks and NBFCs when getting a personal loan. This will help you make an informed decision that aligns with your financial goals.
| Feature | Bank Personal Loan | NBFC Personal Loan |
| Application Process | Involves a detailed application process | Streamlined application process |
| Security | Typically offers secured and unsecured loans. | Primarily offer unsecured loans |
| Rural Reach | Extensive reach, including rural areas. | Primarily urban-focused |
| Processing Speed | Slower due to rigorous documentation and approval processes. | Faster processing times, often with instant approvals. |
| Credit Score Impact | Strict checks: a rejected loan application can negatively impact the score. | Less rigorous checks have a slightly lower impact on credit scores from inquiries. |
| Interest Rate | Lower due to their access to cheaper funding sources | Higher rates to repay repayment are associated with higher risk associated with lending. |
| Eligibility Criteria | Rigorous Credit Checks and require a Good Credit Score | More flexible, making loans accessible to broader income groups, including those with poor or minimal credit history. |
| Documentation | Extensive documentation is required | Minimal documentation |
| Loan Amounts | Offer higher Loan amounts due to a more extensive capital base. | Lower offering, depending on the NBFC. |
| Loan Tenure | Offers longer tenures | Tenures are shorter and less flexible than banks. |
| Foreclosure Charges | Usually, there are lower foreclosure charges | Higher foreclosure charges |
| Prepayment Flexibility | Often allows prepayment with minimal to no charges after a specified period. | Prepayment options are available but often with higher charges. |
| Loan Disbursal Time | Takes longer due to stringent approval processes | Quicker disbursal times, often within a few days. |
| Customer Service | Standardized loan products that lack personalization and customization | More personalized customer service and a high degree of customization in loan products. |
| Innovation | Typically slower when adopting new technologies. | Often quicker to implement innovative lending practices and technologies. |
| Branch Network | Extensive branch network providing nationwide access | Limited physical presence but accessible through digital channels. |
| Online Accessibility | Rigid online platforms, complex to access. | User-friendly online interfaces tailored for ease of use. |
| Innovations and Offers | Less frequent special offers or innovations in loan structuring. | More likely to offer promotional rates and innovative loan structures. |
With the information stated above, it is found that both Banks and NBFCs are valuable Personal Loan providers. Choosing between the 2 largely depends on individual’s immediate financial needs, credit score ratings, and others.
However, for instant loan processing and more flexible eligibility criteria- an NBFC is like Chinmay Finlease Limited is the best option. Chinmay, as an RBI- approved NBFC specialises in providing unsecured Personal Loans up to Rs. 2 Lakhs for a period of 180 days. Opting for Chinmay Finlease Limited means getting a loan from an NBFC Loan App that is quick and 100% paperless