While planning for a home loan, it is natural to get baffled by the number of options available. Not only do you need to pick the right home loan for you, but also the suitable lender. In the Indian market, two broad categories of lenders offer home loans – Non-Banking Financial Company (NBFC) and banks. While both have similar home loan offers, certain factors differentiate between the two. However, according to the experts, banks score higher brownie points. Availing a housing loan with a bank has various perks.
Here is why choosing a bank is a better option.
- Strict regulation
Banks offering home loans are directly regulated by Reserve Bank of India, which makes their documentation process stringent. They also require a high credit score from you to approve the home loan application. However, these regulations ensure that you get predictable conveniences and streamlined home loan processes with the bank. Usually, there are low chances of fraud or deceit from the lender concerning interest rates or total borrowing amount. Also, when the banks are satisfied with your creditworthiness after carrying out adequate due diligence, they are more likely to offer you attractive interest rates and better features.
- Overdraft facility
Home loans are long-term debts, where your interest outgo keeps adding with each passing year. This is why many borrowers try prepaying the loan and saving on interest money. Bank offers an overdraft facility to help you do so. When you avail a home loan with an overdraft facility, your home loan is linked to a bank account where you can deposit the surplus funds. The money over and above the EMI is treated as loan prepayment. This helps in bringing down the overall loan amount, helping you save on interest. With this overdraft facility, you can park your surplus funds anytime and reduce your loan liability with prepayments.
- Lower interest rates
As per RBI guidelines, home loan interest rates are linked to the marginal cost of fund-based lending rates (MCLR). This makes it easier for banks to pass on the benefit of changes in interest rates to the borrowers faster. Under the MCLR regime, banks reset the interest rates as per the MCLR reset dates and communicate the interest rate changes to the borrower. Banks offer transparency of interest rates due to being linked to the MCLR regime.
While it is usually better to avail a home loan from a bank due to benefits like overdraft facility and attractive interest rates, it is vital to know its disadvantages too. If you have a low credit score or furnish incomplete documents, you might face problems in the application approval process. Also, banks do not usually approve a high quantum home loan. So, if you wish to avail a high loan amount, you might have to look for other options. It would be better to research the bank before you avail a home loan.