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Personal loans are not just the preferred form of borrowing for individuals; they are also a preferred form of lending for financial institutions today.
And with increased preferences given to those who apply for a personal loan, many are spoilt for choice.
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A decade ago, private and public sector or informal lenders were all that you had when you wanted a loan. Things have changed significantly with NBFCs, even though late entrants to the lending game have made considerable progress in the last 10 years. Take a look at this lending data sourced from credit bureaus from FY16 to FY18-19 until September 2018.
As a borrower, you may be confused as to what type of financial institution is best for you to apply for a personal loan. Should I take a person loan from a private bank or a public sector bank? What about an NBFC? Should I approach a fintech?
In this article, we’ll help you decide the best place to get a personal loan. For the sake of brevity and to avoid overwhelming you with too much information, we will focus on the two major types of financial institutions: Banks and non-banking financial corporations (NBFCs).
Banks, both private and public sector are regulated by the Reserve Bank of India (RBI). NBFCs, though also registered with the RBI, falls under the purview of the Companies Act of 1956. Banks follow a stringent loan approval process while NBFCs are more lenient. Banks and NBFCs have different interest rate benchmarking systems.
While bank interest rates rely on the vagaries of RBI policy rates and market forces, NBFCs have control over interest rates charged to customers because of internal benchmarking.
As a borrower, you have several advantages of taking a personal loan from an NBFC compared to a bank. Here are two major ones.
Most banks are tied by legacy processes, rules, regulations and guidelines set forth by the RBI to assess eligibility for personal loans. From the moment you apply for a personal loan, they have to follow various rules to assess eligibility, documentation, creditworthiness and then finally to approve and disburse the loan. It can easily take 1-2 weeks for you to receive the money in your account.
On the other hand NBFCs are known for faster loan processing and approval because they have more room for being flexible with norms. Typically, an online Fullerton personal loan can be approved within a few minutes if you meet all the eligibility requirements. You can easily apply for personal loan from the comfort of your home.
It’s very difficult to get a personal loan with a bank if your CIBIL credit score is below 700. In fact, due to bad loans piling up, some banks have become even stricter and don’t even consider anything less than 750. Meanwhile, NBFCs are not rigid in assessing your creditworthiness just on the basis of your credit score. You can still have a fighting chance with a credit score of 600-650, though the loan may cost a little more than expected.
Some forward thinking NBFCs and Fintech companies are now looking beyond credit score and credit history to assess a loan applicant. They are using artificial intelligence (AI), machine language (ML) and social media quotient to assess an individual’s creditworthiness. NBFCs will be the first to adopt these new age lending techniques and processes compared to banks.
Now that you know that NBFCs are a better choice for personal loans. Know that it’s also important to select the right NBFC to apply for a personal loan. Go beyond interest rates and processing fees, and look at the customer service, rating, processing speed and credibility of your lender.
You can rely on Fullerton India for your personal loans as it is one of the leading NBFCs in the country, awarded the Retail NBFC of the Year by Outlook magazine for two consecutive years in 2017 and 2018. With flexible terms and attractive interest rates, you can apply for a personal loan up to 20 lakh with tenure of up to 60 months with Fullerton personal loans.