What is NBFC? Types and Difference Between Bank vs NBFC

What is NBFC?

We are living in a generation that likes to have their financial activities taken care of even before they drink their first cup of coffee!

And it is only fair. I mean, forget the millennials, why should anyone waste their precious time waiting for a simple approval? Thankfully, NBFCs just solve this problem.

In the recent past, NBFCs have played a pivotal role in increasing access to financial products for millions of Indians.

Non-Banking Financial Companies (NBFCs) offer financial services without holding a banking license and perform activities like lending, insurance, and investment management.

But if we already have the traditional banking system offering personal loan, then why do we need personal loan by NBFC?

NBFCs were started as an alternative for savers & investors who were either unable to access traditional banking or were not sufficiently served by it.

What is NBFC?

NBFC stands for Non-Banking Financial Companies which is NBFC full form. NBFCs are companies that perform financial activities without holding a banking license. These companies entered the market not too long ago and are already becoming the raging trend in the financial world.

The credit for this goes to the ability of NBFCs to perform all the financial activities that one expects in the most simple, convenient & fastest way possible!

While net banking is also a viable option available with the same functions, they cater only to 34% of the overall population using financial facilities.

Usually, NBFCs are preferred over banks because they can serve a larger population and fit just right with the mentality of the generation. While there is no hard & fast rule for concluding that one is superior to the other, it all depends on your utility.

To understand what is a better option for you, it is important to know the key differences between an NBFC & a bank:

Personal Loan by NBFCs

NBFC personal loans are bridging the gap between people and their immediate need for money.

In fact, fastest loan app that have an NBFC license offer features like instant approvals, automated risk assessments and advanced security systems that increase the accessibility even more.

Looking for an instant loan? Zype offers personal loans up to ₹5,00,000 starting at just 1.5% interest. Just complete an easy application in less than 8 minutes and get approved for a personal loan within 60 seconds!

But before you apply for a personal loan, it is important to understand everything about an NBFC and how it is different from a bank.

What are the Different Types of NBFC in India

According to the RBI guidelines, these are various types of NBFCs categorized by their activities and deposit found at apply for a personal loans:

Asset Finance Company (AFC):

AFCs offer tangible assets like automobiles, tractors, lathe machines, generator sets, etc to individuals and SMEs.

Investment Company (IC):

As the name suggests, investment companies primarily deal with the acquisition of assets and securities like stocks, bonds, etc.

Loan Company (LC):

Loan company is the most common type of NBFC that you must be familiar with. They offer personal loans, home loans, education loans, etc. to self-employed individuals, salaried individuals and even businesses.

Infrastructure Finance Company (IFC):

IFCs play a significant role in offering assets, loans and funding for any kind of infrastructural development.

Systemically Important Core Investment Company (CIC-ND-SI):

Like Investment companies, CIC-SI are NBFCs that hold 90% of the total assets in the form of investments in equity shares, preference shares and other financial assets.

Infrastructure Debt Fund: Non-Banking Financial Company (IDF – NBFC):

IDF-NBFCs assist in the flow of long-term loans to infrastructure projects.

Non-Banking Financial Company: Micro-Finance Institution (NBFC – MFI):

NBFC-MFI is a non-deposit-taking NBFC that offers collateral-free loans to
Rural households whose annual income is not more than Rs 1,00,000
Semi-urban and urban households whose annual income is not more than Rs 1,60,000.

Also Read: Unsecured Loans

Differences Between Banks vs NBFC Personal Loan

1. Authorization

The biggest factor that sets an NBFC & bank apart is who are they authorized by.

To carry out all core functions such as creating credit, drawing cheques, and so on, a bank requires a banking license which is usually issued by the government.

While NBFCs don’t require a banking license, it doesn’t mean they don’t need any kind of authorization. A non-banking company usually needs an NBFC license which is authorized by the RBI.

2. Roles and Functions

While some functions may overlap between NBFCs and banks, there is a lot of difference between the activities they can and cannot carry out.

The primary reason for this is that a bank plays a vital role in the payment and settlement of the system.

Banks perform activities such as giving loans at a market interest rate, creating & distributing credit, depositing money, allowing demand deposits, making safe money transfers, managing withdrawals, clearing cheques & general utility financial services.

NBFCs perform activities such as lending loans (personal & business) & credit lines, distributing investment products, managing assets (if providing secured loans), depositing money (only for a short-term loans for short time up to 60 months), and making online withdrawals.

Since NBFCs don’t hold a banking license, they cannot perform activities such as making demand deposits, creating credit, or clearing cheques drawn on themselves.

3. Application

Applying for an account at a bank looks very different from applying for an account at an NBFC.

The biggest difference lies in the amount of documentation and the speed of approval.While a bank will ask you for a lot of documentation such as your address proof, PAN card, nominee details, and so on, an NBFC takes only basic information of your PAN number.

More the documentation, more is the time is taken for approval. Hence,it may take 2-3 business days for a bank to get back to you with an approval, but an NBFC doesn’t take more than minutes!

4. Demand Deposits

Demand deposits are when a user can withdraw money from their account whenever they need without giving any prior notice or application.

Such accounts are also known as demand deposit accounts. Your savings account is the biggest example of the same.

Another important point of distinction is that a bank allows you to make a demand deposit, but an NBFC doesn’t. To withdraw money from an NBFC, you can send an application and get your money withdrawn.

5. Credit Facilities

Banks are authorized to create credit facilities on an interest rate based on the market value, while NBFCs do not take part in the creation of credit.

Hence, you can get a credit card from a bank, but with an NBFC you can only get a credit line.

Why is NBFC Loan a Better Option Than Bank Loans? 

NBFCs have become a preferred choice for millions when it comes to borrowing money. And while banks can also provide you with the funds you need at an attractive interest rate, a major difference between bank and NBFC is that you can get an unmatched loan experience with an NBFC. 

With features like a completely digital application process, instant approval, quick disbursal and no documentation, NBFCs have made credit available at your fingertips. 

NBFC Personal Loan Interest Rate And Other Charges 

There are some additional charges associated with borrowing. This includes interest rates and processing fees. The interest rate you’re charged on the loan depends on various factors like your credit score, monthly income, debt-to-income ratio etc. 

The processing fees you’re charged on your loan are nothing but an administrative cost incurred by the lender to process your loan. 

These additional charges can look different, depending on the lender. However, in India, it can range anywhere between 11% to 36% per annum. Looking for a personal loan at the lowest interest rate? With Zype, you can get up to Rs. 5 lakhs personal loan starting at just 1.5% interest per month. 

Advantages of Getting a Personal Loan from NBFC

Here’s why opting for an NBFC personal loan is a better option:

Instant Approval And Faster Disbursals

As compared to banks, NBFCs take very less time to process a personal loan. With Zype, you can get approved for a personal loan within 60 seconds and receive the money in your account within 24 hours.

Lesser Documentation Required

There are many NBFCs that offer NBFC personal loans without any document upload or paperwork, making it a more convenient option for people. All you have to do is provide some basic information like your name, phone number, PAN, etc. to complete your application and get a loan.

Also Read: Documents Needed for Personal Loan

Flexibility of Use

Whether you need loan for an emergency or want to buy something for yourself, personal loans offered by NBFCs don’t have any restrictions on the end use. You can use it anywhere you like, no questions asked!

Final Word

You need not sit with the dilemma of choosing between NBFC or bank. Banks & NBFCs are the dual intermediaries who are currently running the entire financial show of the country, so there is no right or wrong option.

NBFC would be the right fit if you are looking for an instant & convenient experience with a requirement of a low-ticket loan.

Frequently Asked Question

What Is An NBFC Personal Loan?

NBFC personal loans are loans offered by any financial institution holding a NBFC license. Zype is such a fintech platform that follows all the regulatory requirements of the RBI.

What Is The Tenure Of The NBFC Personal Loan?

The tenure of your NBFC personal loan can range anything between 3 months to 5 years, depending on your lender.

On Zype, you can borrow the money you need and repay in 3, 6, 9 or 12 EMIs.

What Is The Personal Loan Policy Of NBFC?

The personal loan policy is different for different NBFCs. It’s best to go through the terms of borrowing from a lender before applying for a personal loan.

How Does The Interest Rate On NBFC Personal Loans Compare To Banks?

The interest rate you’re offered depends on many factors like your credit profile, repayment history and capacity of the lender. Zype offers personal loans up to 5 lakhs starting at just 1.5% interest per month.

Can I Apply For An NBFC Personal Loan Online?

Yes, you can apply for an NBFC personal loan online! Just download the Zype app from PlayStore/AppStore and complete an easy application.

What Are The Risks Of Applying For A Personal Loan From An NBFC?

While a personal loan from an NBFC comes with a hassle-free loan experience, there are some risks that you should look out for: 

  • Defaulting on your loan: This can attract penalty charges, a decrease in credit score and even collection attempts from recovery agents. 
  • Choosing a fraudulent lender: You can avoid this by going through the reviews and ratings of the NBFC.
How To Choose The Best NBFC For A Personal Loan?

To choose the best NBFC for a personal loan, make sure your lender can tick these points: 

  • They’re able to provide you the loan amount you require. 
  • They offer you a low interest rate. 
  • You get a smooth loan experience because of features like easy application process, instant approval, quick disbursal, etc.
Why Should You Apply For A Personal Loan From An NBFC?

You can get an unmatched loan experience with an NBFC. With features like a completely digital application process, instant approval, quick disbursal and no documentation, NBFCs have made credit available at your fingertips.

Is It Safe To Take A Loan From NBFC?

Yes, as long as the NBFC practices all the regulatory requirements of the RBI, it is completely safe to take a loan from an NBFC. 

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