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Which Is Better For Personal Loans – NBFS or Banks?

Personal Finance

A personal loan is the most preferred type of loan. It is also the most preferred form of lending for banks. A decade ago, if you were to take a personal loan, you would not have had many options. Private and public banks and informal lenders were some of the most common ways of borrowing money. However, things have drastically changed, and you can also take loans from an NBFC (non-banking financial company).

It is vital to understand how NBFCs work and how they differ from banks. This will not only make you familiar with the workings of this institution but will also help you make the right choice for a personal loan.

What is an NBFC?

The NBFC is not a bank but performs certain monetary functions like a bank. It will provide you with loan and credit facilities. Furthermore, it will also give you various investment options. If you have a business, it will help you acquire various financial instruments.

You can get shares, bonds, debentures, and other securities issued by the government. Banks and NBFCs have different interest rates for personal loans. Banks rely on RBI guidelines for their interest rates. While NBFCs have interest rates determined by internal benchmarking. So if you want to save some interest on a personal loan, do not forget to compare their interest rates.

Difference between banks and NBFCs

There are three critical differences between a bank and an NBFC. And to decide which option is best for a personal loan, you should understand these differences.

CategoryBank NBFC
Banking Services The bank offers credit and all other banking services. NBFC provides all banking services except issuing or accepting demand drafts and cheques. 
Reserve RatioBanks maintain a specified CRR ratio to ensure they have liquidity for different deposits managed by them. An NBFC does not need to maintain a specified CRR. However, RBI ensures that most of them have stringent CRR.
RegulationsThe Reserve Bank of India regulates banks. The RBI cannot regulate NBFCs as they are registered under the Companies Act of 1956. 

NBFCs or banks—which is the better option for a personal loan?

For various reasons, you would find NBFC a better option for your personal loan. It offers facilities such as instant transfer and has a smooth application process. Some of the key benefits that you will enjoy by taking a personal loan from an NBFC in comparison to a bank are as follows:

Eligibility parameters

The eligibility requirements for a personal loan from the NBFC are straightforward. You do not have to go through a lengthy and complicated process like banks. To be eligible for the loan, all you need to do is provide your CIBIL score. You need a CIBIL score of at least 750 to get instant approval. However, if you have a low CIBIL score, you can get a loan by showing substantial income and a healthy career profile.

You will not get this flexibility at a bank. Banks have a strict approval process that complies with RBI guidelines. Furthermore, there are numerous background and credit checks in the approval process. These checks make the approval process longer and more complex.

Minimal paperwork

If you are an existing customer of an NBFC, you do not need to submit any documents for a personal loan. This also applies to pre-approved customers. However, you must submit some basic documents if you are a new customer. An officially valid document for KYC, a bank statement, and a salary slip are enough for loan approval.

However, at banks, you would be required to submit lengthy paperwork. This condition applies to both existing and new customers. If you are a self-employed person, you need to submit additional documents to get your personal loan approved by the bank.

Faster approval

As discussed earlier, banks run many checks before approving a loan. These checks delay the loan approval process. Furthermore, even after these checks, the application would take at least 1-2 weeks to get approved.

With NBFCs, you can get loans approved within minutes. Some NBFCs also allow a person to apply for a personal loan from their home and get it approved instantly.

Quick processing

By applying for a personal loan at an NBFC, you can get your money within 24 hours of approval. However, only selected NBFCs process the loan amount at this speed. Therefore, you should check these details before applying for a personal loan. This swiftness makes NBFCs a better option for urgent financial needs. So if you are facing a medical emergency, you can trust NBFCs for a swift money transfer.

The processing time for banks is longer than NBFCs. You must wait for at least a few weeks to get your money. Although some banks may offer faster loan processing, it will still take more than 24 hours.

An easy online loan application process

Most NBFCs provide an online application process for a personal loan. You can get on their website and fill out the online form to initiate the approval process. You will not get this online facility if you decide to take a personal loan from a bank. To start the loan approval process, you must visit the bank and fill out the offline application forms. This makes taking personal loans from banks a tiresome process.

Superior customer support

Top-rated NBFCs have better customer support than banks, making them more reliable and trusted. You also get a customer relationship manager upon applying for a personal loan at an NBFC. This person will guide you through the loan approval process and help you get the personal loan sanctioned soon.

With banks, you will not get a reliable customer support system. Moreover, customer support is worst in public banks.


All the points mentioned above indicate that if you are considering applying for a personal loan, the NBFC is the better option. It offers a more flexible and time-saving loan application and approval process. If you wish to know more about financial topics such as this and want to know more about different financial services, visit the Piramal Finance website and learn more about their products and services.