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Should You Avail A Home Loan From Banks Or NBFC?

IndianMoney.com Research Team | Posted On Monday, September 10,2018, 03:56 PM

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Should You Avail A Home Loan From Banks Or NBFC?

 

 

NBFC stands for Non-Banking Financial Company. These are not banks, but financial organizations that provide selected banking services. They don’t have a banking license and cannot accept deposits from the public, but can provide loans, credit facilities and so on. NBFCs also provide Home Loans.

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Merits of NBFC:

1.  They process home loans faster than banks.

2.  They require lesser documentation compared to banks.

3.  They are lenient when it comes to approving a Home Loan.

4.  Quick loan disbursals.

5.  They charge lower interest compared to banks.

6.  They lend money even if your credit score is not great at higher interests.

Should you avail a home loan from banks or NBFC?

1.  Rate of interest charged by banks is linked to Marginal Cost of funds based Lending Rate (MCLR). Interest rates charged by Housing Finance Companies and NBFCs are linked to the Prime Lending Rate (PLR). Banks come under the ambit of the RBI but NBFCs and HFCs don’t. They can freely set PLR. Therefore, if you fail to meet the loan eligibility criteria of banks, you can approach NBFCs.

2.  Banks can fund up to 80% of a property’s value. Both NBFCs and banks are not allowed to fund stamp duty and registration costs. NBFCs take into account these costs to calculate market value of the property, so you can borrow a larger amount.

3.  NBFCs are more lenient when it comes to CIBIL score vis-à-vis banks. However, they charge high interest rate. You may avail loans from an NBFC, make timely re-payments and build credit score. You could then transfer the loan to a bank.

4.  Paperwork and processing is very stringent and strict, when it comes to availing a Home Loan with banks. However, NBFCs are not too strict on the same.

SEE ALSO: Home Loan Protection Plans

Documents required for a Home Loan:

Following are the important documents required to avail a Home Loan:

1. Duly filled loan application form

2. Identity proof: PAN card, Bank passbook, Ration card, Voter’s ID, Driving license, Passport, Employee ID

3. Age proof: PAN card, Birth certificate, 10th marksheet, Bank passbook, Passport, Driving license

4. Address proof: Bank passbook or Bank statement, Ration card, Voter’s ID, Passport, Letter from a recognized public authority verifying residence address, Utility bills like telephone, electricity, water bills less than 2 months old, LIC policy/receipt

5. Income documents:

Salaried individuals:

  1. Form 16
  2. Form 26AS
  3. Increment letter
  4. Pay slip (last 2 months)
  5. ITR (last 3 years)
  6. Investment proofs (like fixed deposits, shares and so on)
  7. Passport-size photographs

Self-employed:

  • IT returns (last 3 years)
  • Computation sheets attested by CA
  • Balance Sheet and Profit & Loss Account attested by a CA (last 2 years)
  • Photocopy of Registration Certificate of business under Shops and Establishments Act/Factories Act and for deduction of Professional Tax
  • Investments proofs
  • Certificate of Practice
  • Receipts of advance tax payments

6. Passport size photographs

7. Property documents:

  • Sale deed, agreement of sale (original copy)
  • Letter of allotment given by the Housing Board, society or builder
  • Original receipts of advance payments for purchase of property
  • Original No Objection Certificate (NOC) from the housing society or builder
  • An approved copy of the building plan
  • Original land and building tax paid receipt and possession certificate
  • Detailed estimate on the cost of construction of  house

Features of a Home Loan:

  1. Interest rate: Home Loans offer two types of interest rates: fixed interest rate and floating interest rate. Most home loans these days are floating interest rate.
  2. Tenure: Home Loan is a life-long commitment. The tenure of repaying a Home Loan is long and can go over 20 years.
  3. CIBIL score: This is your credit score which is calculated based on credit history. Banks consider this as a basis to lend. Home Loans are easily sanctioned if you have a CIBIL score of 700 and above.

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