Ever wonder why some people borrow money from banks while others use non-banking financial companies? Your initial instinct might be to call a bank if you need money right away. However, a friend then recommends an NBFC, claiming that it is more flexible and easy. You're probably wondering what is the difference between NBFC and a bank. Let's break it down.
What Are Banks and NBFCs?
You need to comprehend these financial institutions before delving into the differences. A bank is a kind of monetary institution that takes deposits, makes credits, and offers administrations including cash transfers and withdrawals. On the other hand, non-banking financial companies offer credit lines and personal loans and don't accept demand deposits like banks.
What is the Difference Between NBFC and Bank?
Despite the fact that the two of them contribute fundamentally to the economy, banks and non-banking financial companies contrast extraordinarily with each other. Understanding these distinctions will help you in going with an informed monetary decision.
The Reserve Bank of India (RBI) authorizes strict guidelines on banks in India under the Banking Regulation Act of 1949. However, non-banking financial companies are likewise administered by RBI in 1956 under the Companies Act.
One of the most crucial aspects in the NBFC vs bank discussion is the ability to accept deposits. Customers can withdraw money at any time because the banks accept both current and savings deposits from the public. Customers cannot open regular savings or current accounts with NBFCs, nevertheless, because they are unable to accept demand deposits.
Although they take different approaches, banks and NBFCs both offer loans. When granting a loan, the banks adhere to strict regulations and demand long documentation and good credit scores. However because non-banking financial institutions offer a more flexible lending process, they are well-liked by those with low credit scores or those seeking instant loan approval.
Banks facilitate a range of financial activities, such as issuing cheques, overdraft protection, and money transfers. These services are not provided by non-banking financial institutions. You have to visit banks only if you require a checkbook or an account that permits withdrawals.
Banks frequently have cheaper interest rates than non-banking financial institutions because of their strict regulations. NBFC makes up by providing customized lending options, quick approvals, and less paperwork. Despite somewhat higher interest rates, many borrowers are drawn to this flexibility.
The degree of security is still another important distinction between NBFC vs banks. Banks offer greater economic stability since they are required to uphold specified criteria and are backed by RBI. Because they do not adhere to the same strict criteria, non-banking financial institutions have higher risk exposure.
What Should You Choose Between NBFC vs Bank?
Now that we’ve covered the differences, the question is what should you choose between NBFC vs Bank? The answer depends on your needs:
If you need a savings account, cheque facilities, or low-interest loans, a bank is the right choice.
If you’re looking for quick approvals, zero documentation, or have a low credit score, an NBFC might be a better option.
Top differences while applying for loans between Banks vs. NBFCs?
Applying for a loan from a bank and a Non-Banking Financial Company follows a similar process, but there are key differences in eligibility, approval speed, and documentation.
Applying for a Loan from a Bank:
Banks have stricter eligibility criteria and require a strong credit score. These are the following steps:
Visit the bank’s website or branch.
Fill out the loan application form.
Submit documents like income proof, business details for business loans, and ID/address proof.
The bank reviews your credit history and financial stability.
If approved, the loan is disbursed in a few days to weeks. But you can get pre-approved loan options from banks if you have your savings account in the same bank. In this case, the money is disbursed in a few hours.
Banks usually offer lower interest rates but have a longer approval process due to strict verification.
Applying for a Loan from an NBFC
NBFCs are more flexible and process loans faster as NBFCs are often partnered with LSPs like Viva Money where applying for a loan is the easiest job. Follow these steps to apply for a Viva Money- line of credit:
Download the Viva Money from the iOS app store or Android play store
Log in with your mobile number
Select the desired credit limit
Add your PAN & Aadhaar details and check your eligibility
Complete KYC verification
Get instant approval and access your credit line loan anytime
While NBFCs charge slightly higher interest rates, they offer quicker approvals and easier eligibility. Choose based on your financial needs and urgency.
What is the Role of Banks and Non-Banking Financial Companies in Economic Growth?
In different ways, banks and non-banking financial companies both support economic expansion. NBFCs drive financial inclusion by offering credit access to those who struggle with the long documentation of traditional banks, while banks ensure financial stability by maintaining a regulated credit system. In NBFC vs bank, the focus is on cohabitation rather than the competition because every financial ecosystem serves a distinct function.
Arriving at the Summit
Making wise financial decisions is aided by knowing the difference between NBFC and banks. Non-banking financial companies provide flexible, easy, and zero documentation solutions, while banks provide traditional, stable, and highly regulated financial services. In the end, the choice is determined by your urgency, credit, and financial objectives. Thus, you will know just where to turn the next time when you require financial assistance!
