Home Loan Interest Rate Comparison between NBFCs and Banks

Home Loan is a pathway to your dream home. It takes a lot of saving and financial planning to purchase a home for self-use. For, a decision to buy a property often entails in-depth market research followed by a detailed Home Loan Interest Rate comparison between the different lenders.

If you too are planning to buy a home, you must carefully assess the rate of interest offered by main street banks and Non-Banking Housing Finance Companies. For, the choice of lender would determine the cost of the loan. With right action plan for Home Loan, you can avail the desired loan at flexible repayment terms, low processing fee, & affordable interest rate.

The decision between the two, however, could be intimidating for the first time property buyers. So, let’s simplify the task and compare interest rates for Home Loans and NBFCs below.

First things first, the choice of lenders is enormous for Home Loan. The best rate offers come from public sectors banks such as State Bank of India Home Loan while the ones from NBFCs like PNB Housing Finance and Dewan Housing Finance Corporation may cost you a bit more. However, the latter would fetch you more flexible loan terms. The cost of a loan constitutes the principal amount, interest rate, processing fee, stamp duty, and registration cost of the property.

The Reserve Bank of India regulates the banks while the National Housing Bank governs the NBFCs. There is a major difference in the style of operation for both the entities and thus their Home Loan products vary greatly as well.

Home Loan Interest Rate offered by Banks & NBFCs

It is well-known that Home Loans can be borrowed at a fixed and flexible rate of interest. However, a majority of housing finance is credited on an adjustable interest rate. The effective rate of interest of banks follows MCLR or Marginal Cost of funds-based Lending Rate, which depends largely on the benchmark rate set by the RBI every quarter. Banks are more active in passing on the interest rate changes faster to borrowers as compared to NBFCs. Recently, the State Bank of India has cut its MCLR-based lending rates by 5 bps to 8.5%.

The change in the rate of interest manifests according to the reset date of the loan. Generally, the reset date for Home Loans is set at six months or one year. When you borrow the loan, assess the reset date for your loan plan.

Another factor to note, private sector banks levy a higher interest rate of interest as compared to the public sector banks. As a rule of thumb, you can always secure a competitive rate of interest with a good credit score. If you maintain 750 or above CIBIL score, you can certainly avail the best interest rate.

NBFCs Home Loan Interest Rate

The Home Loan Interest Rates offered by NBFCs are higher as compared to interest rates offered by banks. But they have more relaxed terms for sanctioning credit. You can avail Home Loan from an NBFC at a lower CIBIL Score. In a pressing situation when you urgently require a Home Loan, you can Apply for a Home Loan to an NBFC and get approved without much hassle. Later on, as you build good history and improve your score after a couple of years, you can always transfer your loan at lower rate offered by the bank. However, the decision should be a calculated one and not driven only by the rate difference.

Another point to note here is the fact that NBFCs are slower in transmitting rate cuts to the consumers. For, they base lending rates on BPLR.

Differences between Home Loans by Banks and NBFCs

Features Banks NBFCs
Eligibility Criteria Stringent; outlined with detailed checks Comparatively easier and flexible
Interest Rate Benchmark MCLR PLR-Spread
Negotiation on Rate Low chance High chance
Interest Rates Best in the market from public sector banks; Good rate from private banks High rate compared to Banks
CIBIL Score 750 or above Loan available at lower than score


Lengthier than HFCs Less complicated as compared to banks
Overdraft facility Available as an add-on facility on your Home Loan Not available

With this comparison between home loan interest rates of NBFCs and banks, it is clear that both NBFCs and Banks offer extensive housing finance products for the diversified customer base. The ideal choice depends on your financial situation. It would all depend on whether you meet the eligibility criteria of lender or not.

Alternatively, you can choose to compare the available loans and interest rates by visiting an online market place. To find the best match for your needs, fill the form, and share your loan requirements. Based on your employment status, annual income, loan quantum required, and credit score, you will gain access to the customised list of top available offers from different lenders.

A loan representative will call you and share further insights about loan processing and approval. They also arrange for documentation pick up and handheld their customers until the loan gets disbursed. Thus your Home Loan application, loan approval, and disbursal, all can be carried out online from the comfort of home.