Should You Choose NBFCs or Banks for a Personal Loan?

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NBFCs are non-banking financial companies in the business of lending to retail and corporate borrowers. Usually, when a borrower faces trouble in getting a loan from a traditional commercial bank, they turn to these NBFCs. This is because these NBFCs personal loans are less stringent and finance the entire loan amount. On the other hand, if the loan amount is high, the bank usually sanctions a percentage of it, and the borrower has to arrange the balance.

Also, getting a bank loan is a cumbersome process and involves a lot of documents unlike NBFCs. NBFCs are considered less strict than banks as they do not conduct strict credit checks. Loan processing time is another advantage with NBFCs as the loan application approval, or rejection decision, takes a few minutes. Personal loan nbfc are also unsecured, i.e. without any collateral or guarantor, which is very less in the loans of banks.

Difference Between Banks and NBFCs

Both private and public sector banks are regulated by the Reserve Bank of India (RBI). NBFCs, though also registered with RBI, come under the purview of the Companies Act of 1956. Banks follow a rigorous loan approval process whereas NBFCs are more lenient. Banks and NBFCs have totally different personal loan interest rate benchmarking systems.

While bank personal loan rates depend on RBI’s policy rates and uncertainties of market forces, NBFCs have control over the interest rates charged to customers due to internal benchmarking.

Benefits of personal loan from NBFC

There are many advantages and disadvantages of taking an NBFC personal loan over any commercial bank (be it a private bank or a government-owned bank) loan. These benefits are listed below:

Credit score:

A borrower’s personal loans with low cibil score is usually not entertained by banks, and his/her loan application is rejected, which further lowers the credit score. However, these borrowers can get loans from NBFCs quickly as they have few loan products specially for them.

Quick Turnaround Time:

The eligibility criteria and application scrutiny are less stringent in NBFCs as compared to traditional banks. If you are looking for a loan in case of an emergency, an NBFC is the best bet.

Loan Amount:

Banks usually do not sanction the entire loan amount. They accept a certain percentage of the loan amount. However, NBFCs sanction the entire loan amount without entering into any restrictive agreement on the loan. Thus, if you want a bigger loan, prefer to approach an NBFC.

Customer service:

NBFCs provide better customer service to their customers during the later stages of loan approval and disbursement. Borrowers can view loan status, enable notification on installment deadline.


The entire financial sector is a service based industry. Both banks and NBFCs work day and night to fulfill your loan requests. However, when it comes to dedicated customer service, NBFCs sometimes overtake banks. For example, with every home loan approval, they allow you to keep a tab of all your loan details, payments and charges using your online account. Additionally, you are assigned a Customer Relationship Manager, who takes care of all your queries related to the loan, to help you manage your loan comfortably during the tenure.

Keeping this information handy, you can find out about the loan terms, related charges and personal loan rates, apart from benefits like EMI holidays and top-up loans offered by banks and NBFCs, before choosing one. Then use the eligibility calculator and home loan EMI calculator to get an idea of ​​whether you are eligible, what your expected loan amount will be, and how to plan your repayment.


David Cohen

Rachel Cohen: Rachel is a sustainability consultant who blogs about corporate social responsibility and sustainable business practices.

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