Banks vs. NBFCs: Choosing the right partner for your personal loan needs

Personal loans and digital loans are a go-to solution for emergencies, planned expenses, or fulfilling personal aspirations. While banks have traditionally dominated the lending space, online lending platforms powered by NBFCs have emerged as a strong alternative to modern customers. When deciding between the two, understanding their differences is critical to making an informed choice that aligns with your financial goals.

What is an NBFC?
 

A Non-Banking Financial Company (NBFC) is a financial institution that offers banking-like services, including loans, but operates under a different regulatory framework than traditional banks. While banks are governed by the Reserve Bank of India (RBI) under the Banking Regulation Act, NBFCs operate under the Companies Act. NBFCs focus on offering loans with simpler eligibility criteria and quicker processes, also catering to individuals who may not qualify for bank loans and instant cash loans.

Key differences between a bank and NBFC
 

Advantages of choosing a bank for a personal loan
 

Banks offer a host of advantages, making them a preferred choice for many borrowers. Here’s why choosing a bank, especially IDFC FIRST Bank's FIRSTmoney Smart Personal Loan, could be beneficial:

1. Competitive interest rates:

Banks usually provide lower and more stable interest rates, ensuring cost-effective borrowing over the loan tenure. For instance, FIRSTmoney offers low interest personal loans starting at 10.99%.

2. Zero foreclosure charges:

With FIRSTmoney, you can close your loan anytime without worrying about foreclosure charges.

3. Completely digital application:

IDFC FIRST Bank offers a seamless digital process, enabling you to apply for a personal loan without the need for branch visits that too with minimal documentation requiring only your PAN card during video KYC.

4. Tenure flexibility:

You can choose a loan tenure that suits your repayment capacity, ranging from 9 months to 60 months.

5. Multiple on-demand loans:

A FIRSTmoney Smart Personal Loan allows you to avail additional quick loans as per your evolving needs, offering unmatched convenience. The instant personal Loan offered by IDFC FIRST Bank offers instant disbursals.

Advantages of choosing NBFC for a personal loan
 

NBFCs have redefined lending by prioritising customer convenience. Here are four key advantages:

1. Faster processing:

Simplified documentation and advanced algorithms ensure quicker loan approvals and disbursals.

2. Flexible eligibility:

NBFCs cater to applicants with lower credit scores or unconventional income sources, making loans more accessible.

3. Customised products:

They often offer innovative loan solutions tailored to specific needs, such as small-ticket loans or instant loans.

4. User-friendly technology:

From mobile apps to AI-based support, NBFCs leverage technology for a seamless borrowing experience.

When to choose a bank or an NBFC for a personal loan
 

Choose a bank when:
 

• You prioritise competitive interest rates and cost-effective borrowing.
• You prefer a secure, regulated lending environment.
• You are eligible for bank loans based on income and credit score criteria.

Choose an NBFC when:
 

• You need faster loan approvals and disbursals.
• You have a moderate credit score or unconventional income.
• You value flexible terms and customised loan products.

Choosing a bank or an NBFC for a personal loan depends on personal preferences and financial situations. However, before planning your loan, you must use tools like personal loan calculator to get an estimate of your loan cost for better financial management.

Conclusion
 

Both banks and NBFCs offer unique benefits, catering to diverse financial needs. While institutions like IDFC FIRST Bank ensure affordability, reliability, and structured offerings, NBFCs excel in convenience and flexibility. IDFC FIRST Bank’s FIRSTmoney Smart Personal Loan combines the best of both worlds—competitive rates, digital efficiency, and rapid disbursals—making it an excellent choice for borrowers. Apply for a FIRSTmoney Personal Loan today, simply by scanning the QR code on the official page.