What is NBFC? Types and Difference Between Bank vs NBFC

We are living in a generation that likes to have their financial activities taken care of even before they drink their first cup of coffee!

And it is only fair. Forget the millennials, why should anyone waste their precious time waiting for a simple approval? Thankfully, NBFCs just solve this problem. In the recent past, NBFCs have played a pivotal role in increasing access to financial products for millions of Indians. Non-Banking Financial Companies (NBFCs) offer financial services without holding a banking license and perform activities like lending, insurance, and investment management.

But if we already have the traditional banking system offering personal loan, then why do we need NBFC personal loan online.

NBFCs were started as an alternative for savers & investors who were either unable to access traditional banking or were not sufficiently served by it.

What Is a Bank?

A bank is a type of financial institution that helps people manage their money. Banks offer services including saving, borrowing, and investing money. Banks allow clients to open an account in their name to safely store their money. Banks also provide loans to people and businesses. Banks give money to borrowers, and the borrower must repay the loan with interest over time.Banks also offer other services such as credit cards and online banking. The government regulates these and requires them to follow specific standards in order to keep money safe.

What is NBFC?

NBFC stands for Non-Banking Financial Companies which is NBFC full form. NBFCs are companies that perform financial activities without holding a banking license. These companies entered the market not too long ago and are already becoming the raging trend in the financial world.

The credit for this goes to the ability of NBFCs to perform all the financial activities that one expects in the most simple, convenient & fastest way possible! While net banking is also a viable option available with the same functions, they cater only to 34% of the overall population using financial facilities.

Usually, NBFCs are preferred over banks because they can serve a larger population and fit just right with the mentality of the generation. While there is no hard & fast rule for concluding that one is superior to the other, it all depends on your utility. To understand what is a better option for you, it is important to know the between an NBFC & a bank differences:

Personal Loan by NBFCs

NBFC personal loans online or NBFC instant loans are bridging the gap between people and their immediate need for money. In fact, fastest loan app that have an NBFC license offer features like instant approvals, automated risk assessments and advanced security systems that increase the accessibility even more.

Looking for an instant loan? Zype offers personal loans up to ₹5,00,000 starting at just 1.5% interest. Just complete an easy application in less than 6 minutes and get approved for a personal loan within 60 seconds! But before you apply for a personal loan, it is important to understand everything about an NBFC and how it is different from a bank.

What are the Different Types of NBFC in India

These are various types of NBFCs categorized by their activities and to apply for a personal loans:

Asset Finance Company (AFC):

AFCs offer tangible assets like automobiles, tractors, lathe machines, generator sets, etc to individuals and SMEs.

Investment Company (IC):

As the name suggests, investment companies primarily deal with the acquisition of assets and securities like stocks, bonds, etc.

Loan Company (LC):

Loan company is the most common type of NBFC that you must be familiar with. They offer personal loans, home loans, education loans, etc. to self-employed individuals, salaried individuals and even businesses.

Infrastructure Finance Company (IFC):

IFCs play a significant role in offering assets, loans and funding for any kind of infrastructural development.

Systemically Important Core Investment Company (CIC-ND-SI):

Like Investment companies, CIC-SI are NBFCs that hold 90% of the total assets in the form of investments in equity shares, preference shares and other financial assets.

Infrastructure Debt Fund: Non-Banking Financial Company (IDF – NBFC):

IDF-NBFCs assist in the flow of long-term loans to infrastructure projects.

Non-Banking Financial Company: Micro-Finance Institution (NBFC – MFI):

NBFC-MFI is a non-deposit-taking NBFC that offers collateral-free loans to
Rural households whose annual income is not more than Rs 1,00,000
Semi-urban and urban households whose annual income is not more than Rs 1,60,000.

Also Read: Unsecured Loans

Differences Between Banks vs NBFC Personal Loan

1. Authorization

The biggest factor that sets an NBFC & bank apart is who are they authorized by. To carry out all core functions such as creating credit, drawing cheques, and so on, a bank requires a banking license which is usually issued by the government. While NBFCs don’t require a banking license, it doesn’t mean they don’t need any kind of authorization. A non-banking company usually needs an NBFC license which is authorized by the RBI.

2. Roles and Functions

While some functions may overlap between NBFCs and banks, there is a lot of difference between the activities they can and cannot carry out. The primary reason for this is that a bank plays a vital role in the payment and settlement of the system. Banks perform activities such as giving loans at a market interest rate, creating & distributing credit, depositing money, allowing demand deposits, making safe money transfers, managing withdrawals, clearing cheques & general utility financial services.

NBFCs perform activities such as lending loans (personal & business) & credit lines, distributing investment products, managing assets (if providing secured loans), depositing money (only for a short-term loans for short time up to 60 months), and making online withdrawals. Since NBFCs don’t hold a banking license, they cannot perform activities such as making demand deposits, creating credit, or clearing cheques drawn on themselves.

3. Application

Applying for an account at a bank looks very different from applying for an account at an NBFC.

The biggest difference lies in the amount of documentation and the speed of approval. While a bank will ask you for a lot of documentation such as your address proof, PAN card, nominee details, and so on, an NBFC takes only basic information of your PAN number.

More the documentation, more is the time is taken for approval. Hence, it may take 2-3 business days for a bank to get back to you with an approval.

4. Demand Deposits

Demand deposits are when a user can withdraw money from their account whenever they need without giving any prior notice or application.

Such accounts are also known as demand deposit accounts. Your savings account is the biggest example of the same.

Another important point of distinction is that a bank allows you to make a demand deposit, but an NBFC doesn’t. To withdraw money from an NBFC, you can send an application and get your money withdrawn.

5. Credit Facilities

Banks are authorized to create credit facilities on an interest rate based on the market value, while NBFCs do not take part in the creation of credit.

Why is NBFC Loan a Better Option Than Bank Loans?

NBFCs have become a preferred choice for millions when it comes to borrowing money. And while banks can also provide you with the funds you need at an attractive interest rate, a between bank and NBFC difference is that you can get an unmatched loan experience with an NBFC. 

With features like a completely digital application process, instant approval, quick disbursal and no documentation, NBFCs have made credit available at your fingertips.

When to Choose an NBFC for Personal Loan?

Few reasons to choose an NBFC for personal loan are as follows:

• Quick Funds:  If you need an urgent loan, NBFC is the best option for quick loan, approval and disbursal.
• Credit Profile: If you have average credit score, few NBFCs may approve your loan application without being much stringent.
• Less Documentation:  With minimal paperwork, NBFCs and personal loan apps like Zype approve loans instantly.
• Flexible Repayment Tenure: NBFCs offer flexible repayment schedules with flexible tenures.

NBFC Personal Loan Interest Rate And Other Charges

There are some additional charges associated with borrowing. This includes interest rates and processing fees. The interest rate you’re charged on the loan depends on various factors like your credit score, monthly income, debt-to-income ratio etc. 

The processing fees you’re charged on your loan are nothing but an administrative cost incurred by the lender to process your loan. These additional charges can look different, depending on the lender. 

Looking for a personal loan at the lowest interest rate? With Zype, you can get up to Rs. 5 lakhs personal loan starting at just 1.5% interest per month. 

Advantages of Getting a Personal Loan from NBFC

Here’s why opting for an NBFC personal loan is a better option:

Instant Approval And Faster Disbursals

As compared to banks, NBFCs take very less time to process a personal loan. With personal loan apps like Zype, you can get approved for a personal loan within 60 seconds and receive the money in your bank account instantly.

Lesser Documentation Required

There are many NBFCs that offer NBFC personal loans without any document upload or paperwork, making it a more convenient option for people. All you have to do is provide some basic information like your name, phone number, PAN, etc. to complete your application and get a loan.

Also Read: Documents Needed for Personal Loan

Flexibility of Use

Whether you need loan for an emergency or want to buy something for yourself, personal loans offered by NBFCs don’t have any restrictions on the end use. You can use it anywhere you like, no questions asked!

Advantages of Choosing a Bank for Personal Loans

Competitive Interest Rates: Banks offer lower interest rates, especially for customers with good credit scores.

Larger Loan Amounts: Banks can provide higher loan limits compared to non-bank lenders.

Flexible Loan Terms: Banks typically offer customizable repayment terms to suit your financial situation.

Quick Approval Process: Existing customers may benefit from faster loan processing and approval.

Established Reputation: Banks have a trusted, long-standing reputation for reliability and security.

Final Word

You need not sit with the dilemma of choosing between NBFC or bank. Banks & NBFCs are the dual intermediaries who are currently running the entire financial show of the country, so there is no right or wrong option.

NBFC would be the right fit if you are looking for an instant & convenient experience with a requirement of a low-ticket loan.