Taking A Home Loan From An NBFC? Note These

Do not be mistaken by the advertisements they show on television. Getting a home loan takes much more time than what the TV commercials tell you. Apart from the time, you also have to be ready with piles of documents to prove that you can be trusted with a loan of such a great value — home loans are often large in size and most borrowers would spend a great part of their lives in repaying them. Buy what if you are not prepared to buy you must get a loan and buy a house nevertheless? Your credit score is poor and your eligibility is also questionable on several grounds. And, the problem is that you need this loan as quickly as possible. Banks would certainly not entertain you. What are your options, then?

The answer is that you could go to a housing finance company (HFC) or a non-banking finance company (NBFC) and apply for a home loan. Not only would you have your loan quickly processed, you would also find the whole process comparatively easier. When compared to banks, HFCs and NBFCs have relaxed rules and are more willing to lend even if a borrower does not meet the eligibility criterion.  However, there are certain things that must be considered before you knock on the doors of an NBFC or an HFC to borrow.

• Loans offered by the non-banking housing finances companies are not linked to the new lending benchmark—the marginal cost of funds-based lending rates (MCLR). Loans offered by NBFCs and HFCs are linked with the prime lending rate system. The MCLR regime came into effect in April 2016, and all banks now offer home loans linked with a floating interest rate using the new benchmark.

• It is mandatory for banks to pass on the benefits offered by the Reserve Bank of India, as the MCLR system falls under the ambit of the central bank. The same is not true of the prime lending rate system. NBFCs are free to set a prime lending rate of their choice and any changes by the RBI in lending rates will have no impact on it. This means that an NBFC is under no obligation to slash interest rates even if the RBI has substantially reduced repo rate (the rate at which the RBI lends money to banks). However, this works both ways. Banks can not lend you money at rates below MCLR while HFCs and NBFCs can do so.

• Banks provide you with an overdraft loan facility. The overdraft loan is linked with a borrower's account in which he could keep a surplus income. This surplus money is treated as loan pre-payments by the bank. This not only brings down your loan liability but also substantially reduces the interest outgo. HFCs and NBFCs do not offer thins facilities to people who borrow from them.

• While HFCs and NBFCs go easy when it comes to paperwork and other norms that are strictly followed by banks, they do increase the interest rate in case your credit score is poor. While a credit score between 300 and 600 is considered risky by financial institutions, a score above 700 is considered no-risk zone.

• As is obvious, HFCs and NBFCs have a low customer base when compared to banks. To increase profits, they try to sell borrowers other related projects --such as home insurance cover and home loan insurance cover-- along with the home loan. The same is true of banks, too, but NBFCs and HFCs are likely to push this agenda more aggressively. This could jack up the overall cost for a borrower. Depending on your requirements and financial position, you may have to tell your lender that you may not be able to afford the add-ons.

Also Read: A Guide To Get Home Loan Against Property