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Pankaj Tyagi
| Updated: 20 Jan, 2021 | Category: NBFC

Impact of NBFC on the Vehicle and Housing Loan Sector in Recent Times

NBFC on the Vehicle and Housing Loan Sector

In the past few years, the Indian economy has encountered innumerable banking frauds done by bigger organizations, which in turn creates the liquidity crunch in the financial sector. The government has continued to tighten the existing compliances to curb such fraudulent activities. However, that measure has hindered the ability of financial houses to grant easy loans to the credit seeker. In this blog, we will pay attention to the financing of Vehicle and housing loan by NBFCs.

Contribution of NBFC in Recent Times

But thanks to NBFCs which responded proactively against this stressful situation. Non-banking Financial Companies contribution towards the financial sector in the past few years has nothing short of the remarkable fleet. And they are still going stronger by providing affordable and seamless financial services to the needy ones.  

NBFCs are quite remarkable when it comes to rendering affordable and diverse financial services. Also, they have a wide portfolio of financial services including housing loans and car loans accessible to the individual at a nominal rate of interest. 

Role of Non-Banking Financial Company in the Present Scenario

At present, NBFCs are perceived as a sole alternative to a bank. Their scope of operation and nature of services is quite identical to that of banks. In general, these entities are not provided with the right to accept demand deposit from the general public.

With the rise of NBFCs in our country, the portfolio of financial services has been extended to considerable extent, which allows unbanked section of the society to avail the loan.

Read our article:Types of NBFCs in India – An Overview

An General overview on the Vehicle Loan offered by Banks and Private Lenders

Buying a vehicle is one of the most imperative decisions for one’s life. One of the primary constraints in purchasing the vehicle is the scarcity of financial resources. Majority of the individual fails to purchase a vehicle owing to the non-fulfillment of financial demand that the banks were unable to cater due to stringent policies. 

Issues Encountered by the Individual while Availing Vehicle Loan 

Issues related to the Vehicle loans that borrower faces on the prominent basis.

Strict Norms

As compared to private lenders, the norms of the conventional bank are not somewhat favorable for individual having low CIBIL score or income.

Credit History

Banks considered the CIBIL score as a prevalent parameter for judging the creditworthiness of an individual, which sometimes becomes a constraint for people having an inconstant and low income.

Fees and Charges

Apart from stringent eligibility criteria, the banks, mainly the mainstream ones, imposed various types of processing charges before disbursing the actual amount of loan, which otherwise act as a hassle for many individuals.

How NBFCs Supports Vehicle Loan Financing? 

Non-Banking financial companies have emerged as the savior for the unbanked sector of the country. It allows financially challenged people to avail cost-effective credit including car loans at an affordable interest rate. Past success has allowed the NBFCs to increase their loan portfolio and boost the vehicle loan sector for widespread reach. 

Availability of various NBFCs offering a wide range of credit schemes offers ample benefits to the proposed vehicle owners. Some of the advantages are listed below. 

Faceless Verification Process 

NBFCs leverage faceless verification process by implementing technology similar to Fintech companies. This not only overcome the hassle of manual processing but also minimize turnaround time (aka TAT) for the disbursement of the loan amount. 

Reduce Turnaround Time 

With improved IT setup and implementation of newer technology, it becomes incredibly easier for the NBFCs to minimize the overall time taken for disbursement of the loan. With that said, people applying for a loan now do not have to wait for long to obtain their credit amount.

Affordable Interest Rate

Cost of the vehicle is the decisive parameter for calculating the interest rate. That means the vehicle cost is directly proportional to the rate of interest. The non-banking financial company offers flexible interest rates set out for different criteria. 

Low Equated Monthly Installment

The most considerable benefit rendered by NBFC is that offers auto loans with lower EMI when contrasted with banks.

Flexible Insurance Options

Along with vehicle loans, NBFC also renders flexible insurance options to meet the requirement of people.

An Overview on Housing Loan offered by Conventional Lenders and NFBCs

Buying a house requires considerable financial planning. People are generally more inclined towards housing loan owing to easy disbursement and repayment options. Unlike traditional banks, where disbursement of housing loan is subjected to stringent conditions, NBFCs is more productive in that regards. Their main focus is to put aside all the obstacles that are prominent with traditional lending. They usually excel on paperless verification and seamless processing so that end users find it convenient to cater to pre-lending requirements.

Comparison in the Financing of Housing Loan between NBFCs and Banks

The section below illustrates the factors that act as a ground for comparison between NBFC and banks

Basis of Interest Rates

Bank uses the parameter like the Marginal cost of lending rate (MCLR) as the basis of home loan interest. On the contrary, NBFC calculates the rate of interest by taking the Prime lending rate (PLR) into account. 

Eligibility for loan

Both banks & NBFCs leverage the credit score of the proposed borrower, for determining the interest rate of a home loan. But unlike banks, NBFCs norms for a housing loan are more favorable in nature.

Higher Loan Quantum

Banks generally disburse funds up to 80% of the property value, whereas; NBFCs may finance home loan more than that of banks.

How NBFCs makes better Housing Loan Financing?

In the past years, the trends for financial housing loans are being shifted from traditional lending institute to NBFCs. This sector has been successful in building up a positive repo for itself owing to easy disbursement policies and reduced pre-lending requirements. 

Type of Benefits offered by Financing of Housing loan

Financing of housing loan from NBFCs also renders additional benefits to the buyers which are as follows:-

Wide Portfolio of Loans 

The non-banking financial company sector provides credit facilities for all type of housing loans, which also includes Housing Construction Loan, Housing Renovation Loan, Housing Extension Loan, etc

Lower Processing Time

When contrasted with traditional lenders or banks, NBFCs take less time in processing the request of the proposed buyers.

Flexible Terms and Conditions 

NBFCs facilitate flexible terms and conditions for the clients looking forward to borrowing the housing loans. 

Easy Eligibility Norms

NBFCs while funding a home loan sets up various easy eligibility norms related to repayment, location, property valuation, etc. 

Differences in customer services  

NBFCs being a private institution work are committed to meet their customer’s demands related to home financing. 

Nearly Paperless Processing

Owing to the implementation of the latest technology, most of the NBFCs have shifted their working protocols on the online platform. This allows these firms to reduce the time and cost-related assessment of physical paperwork. 

Conclusion

NBFCs are a growth driver for the financial infrastructure of this country. These institutions are taking every possible measure to make financial services[1] accessible to a wide bandwidth of customers. Through the incorporation of the latest technology and IT system, these firms are eyeing to reduce the turnaround time to a drastic level. Favorable financing conditions, flexible interest rate, wide array of financial products makes NBFCs the most preferable choice for the masses.

Getting a vehicle or Housing loan from a conventional bank could be challenging for the individual, particularly in case of low CIBIL score. But thanks to private lenders like CorpBiz that enable individuals to avail of easy loans via minimal paperwork. Feel free to communicate your concern with CorpBiz expert in case if you need some expert-grade advice on financial services.

Read our article:A Complete Guide on Operational Manual of the NBFCs

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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