How did NBFCs Boost the Vehicle and Housing Loans Sector in Recent Years

Akshay Gupta

06 Jan, 2021

In recent years, our economy has faced various banking frauds done by large corporate houses, which creates a big crisis for the financial sector.

Due to those frauds done by renowned fraudsters, it also becomes difficult for a common man to avail of financing facilities from banks, as most of the banks started making stringent norms for every person proposed to avail finance from banks.

To resolve this issue, and also to provide smooth and affordable financial services, Non-banking financial companies (NBFCs) are playing a crucial role in our economy in recent years.

In recent years, a big development in financing options is made by Non-banking financial companies (NBFCs) by offering multiple kinds of products especially for financing vehicles and for fulfilling housing Loan requirements for a person.

The detailed discussion about the financing of Vehicle and Housing Loans by Non-banking financial company (NBFCs) is explained herein below.

What Is Non-banking financial company (NBFC)

Non-banking financial company (NBFC) is a company which is engaged in the business of providing various kinds of loan and advances and various other services to individuals and body corporates.

To Carry on the Business of Non-banking financial company (NBFC), the Company must hold a Certificate of Registration from Reserve Bank of India.

In the present scenario, a Non-banking financial company (NBFC) is acting as an alternative to banks as such NBFC provides financial services similar to that of the banks and also provides financial solutions to the unorganized part of the society.

Generally, Non-banking financial companies (NBFCs) are not allowed to accept demand deposits from the public, such as those in checking or savings accounts, which keeps all NBFCs outside the scope of conventional oversight from Central and state financial regulators.

With the rise of non-banking financial corporations (NBFCs) in India, the choice has only gotten wider as customers can now choose not only among banks but also NBFCs.

Products offered by Non-banking financial company (NBFC)

Today credit is not just a via media to aspirational fulfilments of the individual; it is a booster dose for the industry.

Keeping this in view, Non-banking financial company (NBFCs) being a financial institution, offers various kinds of Loan Products, which includes the following:

1. Business Loans
2. Vehicle Loan
3. Housing Loan
4. Working Capital Loan
5. Gold Loan
6. Micro Finance
7. Loan to MSME’s
8. Corporate Funding
9. Personal Loan
10. Education Loan^[1]
11. Gold Loan
12. Mortgage Loan
13. Commercial Loan
14. Machinery Loan

Apart from the Products mentioned above, a Non-banking financial company (NBFCs) offers various other innovative Products, which includes Flexi Products i.e. combination of More than one product. 

Vehicle Loan

Nowadays, the vehicle becomes an essential article for one’s life. Owning a Vehicle according to one’s needs, makes his life more comfortable and also helps to fulfil his requirement to commute or to use his vehicle for his business or personal purposes.

One can use his vehicle for any purpose instead of using public transportation and also to use his vehicle for leisure or for enjoying weekends.

One of the restraint in buying the vehicle is the lack of financial resources. Most of the people were not able to buy a vehicle due to the non-fulfilment of financial demand that the Banks were not able to fulfil due to certain eligibility criteria in some cases, especially in the case of those people who were working in the unorganized sector.

Issues Faced By People While Taking Vehicle Loan

1. Strict norms: Banks Observed strict norms while giving the proposed vehicle loans for certain people.
2. Credit History: Banks makes an investigation for good credit history while giving a Vehicle Loan, which sometimes becomes a restraint for certain people, as many people don’t have any CIBIL Score rating.
3. Fees and Charges: Another disadvantage of financing a vehicle form banks is that Banks charge multiple kinds of processing and other fees at different times which increases the cost of financing for an individual.

How did NBFCs boost the Vehicle Loan Financing

Non-banking financial companies (NBFCs) resolve the financial problem faced by people to a great extent.

The existence of various Non-banking financial companies (NBFCs) opens up large avenues for people desirous of buying a vehicle.

NBFC Sector boosts the vehicle loan sector in recent years.

Availability of Multiple Non-banking financial companies (NBFCs) offering various kinds of financial products with innovative schemes offers multiple advantages to the proposed vehicle owners.

Some of the benefits are as follows:

• Hassle-Free Process: Non-banking financial company (NBFCs) generally follows the online verification process easy that makes availing of Vehicle Loan easy and hassle-free for the proposed borrower.
• Less waiting period: Non-banking financial company (NBFCs) normally takes very little time in assessing the request for granting a vehicle loan.
• One the assessment got complete, NBFC disburses the Vehicle Loan immediately, which reduces the waiting period for the proposed borrower.
• Attractive Rate of interest: Interest rates offered for financing vehicle Loan is based on the cost of the vehicle, the amount proposed to be raised, etc. Non-banking financial company (NBFCs) offers different and attractive interest rates according to different criteria.
• Low EMI: The most significant benefit offered by NBFC is that they offer Vehicle loan with generally low EMI as compared to Banks.
• Customized insurance options: Along with vehicle loans, Non-banking financial company (NBFCs) also offers customized insurance options that suit the needs of people.

 Housing Loan

House is a basic necessity of every person which provides a permanent roof for himself and his family. Everyone wishes to have a house where he and his family can live together with joy and happiness.

For any person, buying a house is a very important decision which involves considerable financial planning. One of the important facilitator that most of the people adopt while buying a house is to take a home loan, whether from any bank or any other financial institution.

As buying a house involves a considerable investment for everyone, so it becomes important for everyone to choose a proper model for fulfilling his financial requirement for buying a house.

The existence of a Non-banking financial company (NBFCs) opens up new avenues in the real estate sector for the proposed buyers to raise finance for the purpose of fulfilling his financing required for buying a house.

Comparison in the financing of Housing Loan between Banks and NBFCs

• Basis of Interest Rates: Banks used the Marginal cost of lending rate (MCLR) as the basis of housing Loan interest. On the other hand, Non-banking financial company (NBFCs) interest rate are linked to Prime lending rate (PLR) which does not have any restriction from Reserve Bank of India.

• Eligibility for loan: Both Banks and Non-banking financial company (NBFCs) determine the credit score of the proposed housing loan borrower, for determining Rate of Interest of Housing Loan. But, NBFCs norms for the same are more relaxed as compared to banks.

• Higher Loan Quantum: Banks normally fund up to 80% of the property value, while Non-banking financial companies (NBFCs) may finance Housing Loan more than that of Banks.

How did NBFCs boost the Housing Loan Financing

In recent years the trend for financing Housing Loans is being shifted from banks to Non-banking financial companies (NBFCs).

Due to dedicated services, ease of financing and customer satisfaction provided by NBFC as observed by the housing Loan borrowers in the market, this sector has gained its significance in the finance industry.

Financing of Housing Loan from Non-banking financial company (NBFCs) also offers various other benefits to the buyers, which are as follows:

1. Loan for every kind of property: Non-banking financial company (NBFCs) sector offers Loan for almost all kind of Housing Loan, whether it be Housing Loan, Housing Construction Loan, Housing Renovation Loan, Housing Extension Loan, etc

1. Processing time: While assessing housing Loan cases and disbursing the loan amount, the processing time taken by Non-banking financial company (NBFCs) are quite lesser than other Banks.
2. The flexibility of Terms & Conditions: Various NBFCs offer convenience to the borrower while availing housing loans by providing different housing loan products with flexible terms and conditions which vary from case to case.
3. Different Eligibility Norms: Non-banking financial company (NBFCs), while financing Housing Loan, sets up different eligibility norms like repayment capacity, the city you live, work, valuation of your house, etc. apart from your credit history
4. Differences in customer services: Non-banking financial company (NBFCs) being a private corporation, works dedicatedly to satisfy its customers request for housing finance
5. The documentation process is easy and short: GenerallyNon-banking financial companies (NBFCs) uses an online platform for assessing and Loan disbursement and also the documentation process is generally easy and short.

Conclusion

The entire finance sector is a service-led industry. All Banks and financial institutions, including Non-banking financial company, work very hard to fulfil the Vehicle, Housing Loan and other financing requirements of every individual.

However, with due motive customer satisfaction and dedicated and smooth service in providing Vehicle and Housing Loan, NBFCs can out space banks.

Further, after banks become appraised about a large amount of fraud by big corporate houses, resulting in stringent norms for individuals to the financing requirement, NBFC helps our economy to boost finance especially in Vehicle and housing Loan Sector.

Dedicated workforce, easy finance conditions, availability of different financing products, easy documentation along with less processing fees provided by NBFCs helps our people to prefer NBFCs in various cases rather than Banks for fulfilling their financing requirements.