Availing a loan through a bank gives us the flexibility to interact with the concerned deputed person. However, nowadays, there are also certain limitations to using a traditional bank to avail personal loan. To know about Bank Loans vs Personal Loans now.
At the time of a financial crisis, we always look for loans to overcome challenging financial situations, availing of a personal loan can be a better option. However, the question is whether bank loans are the best possible option for personal loans. The truth is that there are other options now. Many non-banking financial Institutions are providing similar lending services to our traditional banks.
Merits of bank Loans:
Customers can discuss the loan and apply personally and being physically present has direct access to the loan officer.
The Customer gets an extra edge if he or she already has an account in that bank, in terms of the tenure and rate of interest, and also if the Customer is an existing track record holder. For Bank Loans vs Personal Loans, this is important.
Demerits of Bank Loans:
- Loan documentation and credit score might be higher to avail of bank loans.
- Customers may have to pay higher interest rates and processing fees because a traditional bank has more overheads and establishment expenses; typically, there are hidden charges as well.
- The customer is bound by the fixed operational hours of the bank. Voice calls and emails are not encouraged.
- The turnaround time is much higher, and the Customer has to wait for the money even after the disbursement of the loan.
The processing time of banks is more because they have to maintain a protocol as given under the guideline of the Reserve bank of India. First, they do an investigation of residence and office to confirm their existence; they also have their own geographical limits when they submit their reports. After this, the loan proceeds to the sales department on getting a go-ahead from the sales department the loan application proceeds to the credit department for sanction of the loan application. Here the credit officer sanctions the available loan amount. Once the loan amount is approved, it goes to the disbursement section from where the loan is disbursed to your valid bank account.
In this way, the loan is processed and is disbursed, so a customer can understand why the turnaround time in a traditional bank is much higher.
Non-Banking Financial Institutions, at times, offer lower interest rates, since their revenue earning method is different from a bank’s earning methods.
Merits and Demerits of Online Non-Banking Financial Institutions:
Customers have to comply with the credit norms online by furnishing their Pan Card details and Aadhar card details. However, credit approval may not be as strict as in banking establishments.
Merits of online Non-Banking Financial Institutions:
- The loan can be applied 24/7 online by sitting at home or office irrespective of any time frame.
- Overhead costs are much lower because they don’t do any physical verification of residence or office, and they don’t have any sales team to process the loan application. They mainly rely on the credit score of the borrower by verifying online as a report furnished by the competent authority. Adhering to this type of proceeding, saves a reasonable amount of time and thus increases the efficiency of the loan procedure.
- Credit requirements are less strict. Hence, fewer credit score customers can also get loans by giving them a cushion of not taking loans from daily payment lenders.
- Online application for a personal loan doesn’t require submitting any documents physically everything is done by just uploading a few mandatory documents, mainly the KYC(know your Customer) documents. Even the photograph of the borrower can be just uploaded. All the uploaded documents can also be done through any smartphone. So a customer can easily save a lot of time and avail of the facility without even visiting the lender in person. Hence, by reducing the workforce, they at times charge less lending rate of interest.
- The turnaround time is comparatively less, considering all the facts and their method of operations, and the borrower gets money disbursed in hours into their dedicated bank account.
- They always prefer to interact with customers via emails or online chats because this mode of correspondence is saved and either side cannot disregard the conversation in the future at the time of any legal dispute arising from either party.
Demerits Of online Non-Banking Financial Institutions:
- Customer service is limited based on their working culture. Voice call is not desirable, but Customers can only get in touch through online chat or via emails.
- Representatives are not always aware of the desired in-depth financial knowledge in comparison with traditional bank representatives, which is a matter of concern in today’s fast pace life. The Customer only has to depend on the replies to emails, which at times takes a lot of days.
- The Customer has to pay a lot of attention to the terms and conditions before committing to the loan because the detailing in case of any default is not mentioned, which may be very tricky for a first-time borrower to understand. So it is advisable to clear any doubts beforehand either via emails or online chats.
Conclusion:
Customers should always compare both Traditional banks and Non-banking Financial Institutions in terms of the rate of interest and tenure of the loan. Customers should also figure out how much he or she is paying at the end of the loan tenure. What are the penalty criteria in case of any default during the loan period, what are the foreclosure procedure and charges? Customers can always pull the benefits out of Non-banking Financial institutions, discuss with Traditional banks, and get the maximum advantage. In the end, the Customer needs to choose the best available option according to the situation and the customer’s comfort zone.
