How Taking a Personal Loan from Banks is Different Than NBFCs for Self-Employed

Updated on: 14 Dec 2021 // 15 min read // Personal Loans
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When it comes to Taking a Personal Loan, you may be faced with one pressing question – Should you borrow from a Bank or a Non-Banking Financial Company? What is the difference between taking a Personal Loan from a Bank and anon-banking financial company (NBFC)?

Before we delve into the differences between Banks and NBFCs, let us first take a quick look at the importance of Personal Loans. To begin with, Personal Loans can be easily acquired to meet one or more of the below-mentioned financial obligations:

  • Paying off Credit Card Dues
  • Meeting the Expenses of Medical Emergencies
  • Paying for the Wedding Arrangements
  • Meeting the Cost of Home Renovation
  • Bearing Travel Expenditure
  • Kick-starting an Entrepreneurial Venture
  • Expanding a Business

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Factors Affecting Personal Loan Interest Rates

Since Personal Loans are unsecured and don’t need you to offer collateral to the lender against the loan amount, they usually attract higher rates of interest ranging from 11% to 22%. The percentage of interest varies mainly depending on the below-mentioned factors:

  • Annual Income

The higher your income, the better will be your ability to repay the loan, and hence, the lower will be the interest rates charged.

  • Source of Income

If you are an employee in a reputable organisation, or if your business or professional practice attracts a stable flow of revenue, you will most likely get a better interest rate on your Personal Loan.

Personal Loan from Banks

Banks are organised financial institutions governed by the apex bank of the nation – The Reserve Bank of India (RBI). Due to their highly coordinated functioning, banks often lay down stringent guidelines for offering loans. More often than not, banks need the borrower to furnish a proof of their income along with a relatively high credit score of 700 and above to offer a Personal Loan on favourable terms.

Then again, the late fee penalty levied by banks as well as the prepayment penalty charged are on the higher end, and so is the processing fee. That being said, the interest rates charged by banks are often lower than that levied by NBFCs.

Personal Loan from NBFCs

NBFCs are not bound by the guidelines laid down by the RBI and hence can operate on their own terms. This often implies that NBFCs are somewhat lenient in their approach when it comes to offering Personal Loans. For instance, a vast majority of NBFCs readily provide loans to individuals with less than ideal credit scores. As a matter of fact, these financial service providers don’t even hesitate from offering loans to self-employed individuals who are unable to furnish the necessary proof of income. Owing to these leeways, the risk propensity of the lenders increases, which is why they often charge a higher rate of interest than traditional banks.

We hope that you are now aware of the simple yet striking difference between taking a Personal Loan from a bank and taking the same from an NBFC. So, wait no more before you analyse which of these financial institutions will better suit your circumstances, and readily offer you the funds that you require. After all, regardless of your current situation, you should always have a shot at turning the tables around for the better.

Also Read: What are the Alternatives Available for a Personal Loan?

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

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