Which Option is Better for a Home Loan: Bank or Housing Finance?
A home loan is a requirement for an individual who is in there searching for the right lender to either buy or build their first home. However, in the lending market, a person faces two options when they are looking for a home loan product.
One, they can go to a bank, or on the other hand, they can go to a housing finance company, which also facilitates the loan option. The HFC companies are also registered, and they also operate in the regulated market that provides a wide variety of options to the borrowers.
In this blog, we will make a straight comparison between banks and HFCs, and depending on the offers, one can choose the right option for them.
A Brief on Housing Finance Companies
Housing finance companies are the ones that delve into one specialized segment and find customers who require that kind of loan only. The loan book of a housing finance company is quite simple as it has only one kind of borrower and, therefore, is subject to business upcycles and downcycles.
There are loan agents who can connect the borrowers to the lender. Housing finance companies are the ones that use many web aggregators who are proficient in selling the products, and through these alternative methods, they bring customers into the business.
- Advantages of HFCs
There are several advantages that a housing finance company provides, and for a customer it’s important to know what are the benefits of choosing one. Housing finance companies are not banks but are NBFCs, and hence, they come with a set of advantages.
Flexible Loan Options: The loan terms are more flexible when it comes to housing finance companies as they are more focused on that particular sector and, hence, can take risks to capture more growth.
Considering Loans with Low Credit Scores: A person who has recently taken a personal loan or a loan that is going on for a person is paying EMI. Chances are they might have their credit score tampered with. Hence, to rectify these areas, one needs time, and that creates a loss in opportunity cost as one needs to wait to get the loan approved.
Here, the HCFs are the ones that can sanction the loan by looking at the early payment rate and the number of EMIs the person has paid.
- Disadvantages of HFCs
In the housing finance companies, there is one main disadvantage.
High Interest Rate: When compared to banks and housing finance, companies charge higher interest rates since the approval is quite easy; thus, to pay up for the risk the institution is taking, it takes a higher rate from the borrower.
How Banks Provide Home Loans
The role of banks is there when it comes to home loans as it’s one such institution that covers all the financial aspects of a person. An individual, therefore, must look for both options and check which one is best for them.
A bank keeps a diversified loan book, and they don’t deep dive into a single sector as banks are also on the retail and deposit side of the business and therefore can’t take that risk as they need to serve the savings and current account customers.
- Advantages of Bank’s Home Loan
Lower Interest Rates: The advantage of having home loans from banks is that they offer lower interest rates, and for that, one can easily take the loan if they have all the credentials correct. A person can also go for a bank’s home loan if they are a salaried individual with fewer or no ongoing loans.
Here, one can take the help of a finance DSA app, and through that, they can have the right loan offers from multiple banks, and judging their preference, one can choose the home loan product as per requirement.
Access to Multiple Banking Facilities: There are some common aspects like getting other banking facilities and alternative products, and through that, one can make choices of different bank facilities.
- Disadvantages of Bank’s Home Loan
When it comes to banks, there is a disadvantage to taking a home loan.
Strict Loan Approval Process: The approval process of home loans in a bank is strict, and one can choose the loan option, but that can get disqualified due to the stringent loan process.
Depending on the preference and availability, one can choose the loan option that will be best for the individual and will meet their financial need for the home.
