First-time home buyers Would you opt for an NBFC or a bank

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Buying your first home is a major milestone — and often one of the most significant financial decisions you’ll ever make. For many first-time home buyers, choosing the right lender can be just as important as selecting the right property. In recent years, non-banking financial companies (NBFCs) have emerged as serious alternatives to traditional banks when it comes to offering home loans. But are they really a better option for first-time borrowers?

Here's what you should know before you make the call.

What's the difference between NBFCs and banks?

NBFCs are banks that offer equivalent loan services to banks but are exempt from obeying identical stringent banking rules mandated by the Reserve Bank of India (RBI). This gives them a bit more leeway when it comes to charging interest rates, credit assessment standards, and loan terms.

To first-time home loan borrowers, such flexibility is a two-edged sword. On the positive side, it enables NBFCs to grant loans to individuals who do not make the grade at banks because they have lower credit ratings, unofficial income streams, or shaky job histories. But then again, NBFCs tend to levy higher interest rates than banks and could also charge less transparent charges.

Why NBFCs attract first-time borrowers

NBFCs are generally faster in processing applications and more flexible in evaluating borrower profiles. If you are self-employed, have changed jobs recently, or are a new-to-credit customer, an NBFC might be more willing to sanction your loan. Their customer service is generally higher rated than public sector banks, and several of them provide fully digital processes that simplify documentation and verification.

A few NBFCs also provide flexible payment plans like step-up EMIs (where EMIs rise as your income level increases) or longer repayment terms, which might ease the burden of finance in the initial years of the loan.

Where banks still hold the advantage

Although NBFCs can be more convenient to work with, banks usually have the upper hand when it comes to pricing. Public sector and private sector banks usually charge lower interest rates, particularly to borrowers with good credit histories. They also have the benefit of refinancing support from institutions such as the National Housing Bank, which keeps their rates competitive.

Banks are also stabler and regulated, giving a feel of security that might be welcome to some first-time borrowers. Further, processing fees, prepayment charges, and foreclosure norms are usually more borrower-centric in banks than they are in NBFCs, particularly under floating rate loan schemes.

Then which one do you go for?

If you're a salaried person with a good credit history, regular income, and can afford a slightly longer processing time, a bank loan can be your best option for affordability. But if your financial situation doesn't meet all the conventional criteria or if you prefer fast turnaround and flexibility, an NBFC could be the place to begin.

NBFCs may suit first-time borrowers looking for flexibility, but the premium cost of borrowing means that it is crucial to compare all your options. Compare the interest rate, processing fee, repayment tenure, and customer reviews — and don't mind negotiating or switching lenders later if a better option comes up.