If you are planning to buy your dream house through a home loan, chances are high that you are confused about where to apply for the home loan – a bank or from HFC (Housing Finance Company).
Homebuyers need to choose the best lender considering different requirements. One must make a pragmatic and informed decision based on critical factors like interest rates, cost, eligibility criteria and ease of borrowing.
Of course, the first choice that comes to our mind to buy a home is from commercial banks. But there are other options available to finance the home loan application. In this post, we will explore banks and HFC as options to consider for a home loan and help you make the right decision.
Major Difference Between Home Loans from Banks and HFCs
According to experts from ApnaPaisa, one of the reputed vendors offering wide range of loans, ne of the basic and significant differences lies in calculating the rate of interest. HFCs link the rate of interest to the prime lending rate (PLR). On the contrary, banks adhere to the RBI regulations while calculating the interest rate as they follow repo rate-based lending rates for different types of loans.
Banking institutions cannot lend loans below the repo rate. However, there is no such norm with PLR-linked loans. Thus, HFCs can set their PLRs. This brings great freedom to the HFCs as they make independent decisions on the interest rate of loans at any time. This may also cause more time for the rate cut impacts to affect the homebuyers.
Liquidity Crisis in HFCs
The present liquidity crisis HFCs are dealing with is mainly attributed to the asset-liability mismatch (ALM). As HFCs cannot generate capital through retail deposits from common people, they mostly rely on wholesale lending. Therefore, HFCs’ charges or the cost of funds issues are always higher than the banks. Venturing or HFCs into long-term loans to developers and lengthy payment duration are some of the blunders that have intensified the scenario of the liquidity crisis.
Merits and Demerits of Banks and HFCs
- When it comes to the best interest rate, one can get it only from the banks, not HFCs.
- If the borrower has a poor credit scoire and needs funds immediately, then nothing can get better than HFCs.
- If a borrower wants to continue using banking services along with a home loan, it makes sense to get it from banks.
- Before making the final decision, evaluate the options by comparing the fees and the features offered by the banks and HFCs.
Make sure to do proper research and get quotes from both options before making the final decision. Never decide in a hurry. After all, buying a home a more than an investment.
Should You Borrow from Bank or HFC?
The decision to choose any particular option lender should be made based on the financial strength as well as resilience displayed by the lender. This applies irrespective of bank or HFC. If you approach strong players like SBI home loan or LIC housing finance, they already have an established brand in the market. There are also options like ICIC bank, Baja Finance, etc. It is important for buyers to choose a lender that has robust operations across all channels.
Potential home buyers prefer getting loans from banks over HFCs because they get a cheaper interest rate from the former options. Also, banks offer longer repayment tenure of 30 years which is only restricted to 20 years in case of HFCs.
To get quick approval from the bank, the applicant must have a strong credit score and employment stability. When it comes to flexibility, banks are quite flexible in comparison to HFCs. So, it is best to evaluate your eligibility criteria and choose the best option for a home loan that custom fits your requirements.