Banks or Housing Finance Company: Which is better for Home Loan?

Buying residential real estate is every person’s dream that can be susceptible to your financial situations and economic fallouts or inflation.

No matter how big the dream is, arranging the required funds is always a difficult task for most people of our country. But for those who can repay the amount regularly, a home loan is the most efficient and simple solution to fulfil their dream of owning properties in India.

After deciding to opt for a home loan, the question of choosing its lender arises that may leave you confused for many days. It is advisable to decide anything in a hurry as home loans have an extended repayment period and with it continues your relationship with the lender. Whether to go for a housing finance company or bank – this question may haunt many at night.

This article will try to help you make an informed decision in such a situation. Let us analyse the pros and cons of both – bank and housing finance company – to see which one is more suitable for you.

Opting for a home loan from Banks

Banks offer a vast range of loans like home loans, vehicle loans, and personal loans. As per RBI regulations, banks also offer floating interest rate home loans wherein the customers must make repayments based on the interest rate decided for a particular financial year.

However, fixed interest rates remain constant as decided at the time of taking the home loan irrespective of the changes introduced by the RBI in the following years.

Advantages

• Interest rates of the banks are linked to an external benchmark (known as Repo Rate) and PLR, which is responsible for quicker interest rate clearance. It also helps in getting the best interest rates available in the market.
• Banks also offer EMI and overdraft (paid upfront to reduce principal amount) facilities to make the repayment process easier for their customers. It further reduced the loan burden.
• Banks offer attractive interest rates, especially to people having excellent credit scores (usually 750 and above).

Despite all these advantages, taking loans from banks for properties in India also has its downsides. A high credit score is a prerequisite. They also follow a strict and complex documentation process that can be time consuming. The principal amount taken from the bank does not include stamp duty and real estate registration charges.

Opting for a Home Loan from Housing Finance Companies

Housing Finance Company (HFC) is a non-banking finance company (NBFC) specialising in home loans and its allied instruments. Their selection or loan disbursement criteria are less stringent than the banks and allow flexibility under various aspects.

The home loan interest rates from housing finance companies (HFC) are generally pegged to their PLR (Prime Lending Rates) that are similar or higher than that of banks. However, the lowest interest rate gap between HFCs and banks have significantly reduced over the years.

Advantages

• Documentation process of HFCs is simpler and less time consuming since they are flexible over loan criteria like margin money requirement, income, or credit score.
• Housing finance companies are open to accepting their customer’s low credit scores since they have their own model of scoring.
• The principal amount from housing finance also includes stamp duty and real estate registration costs.

Despite these benefits, HFCs have their fair share of cons that includes higher interest rates as compared to the banks. They also have a slow process of passing on interest rates. One of the major disadvantages is the lack of an overdraft facility that may increase the burden of loan repayment over time.

In conclusion

Although taking a home loan from either housing finance or banks have their distinct features, their list of cons becomes the decisive factor. Opting for a home loan through banks definitely outweighs in most areas, making it a suitable option for all.

If you want to opt for a housing finance real estate loan, make sure to read every document and carry out thorough research before signing the papers.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.