Banks vs NBFC: who offers the cheapest home loans?

The increase in monthly equivalent payments (EMI) could be a source of concern for many mortgage borrowers, as the Reserve Bank of India (RBI) has increased the repo rate by 0.9% since May 4, 2022 Banks also passed on the full rate hike to customers resulting in higher borrowing costs.

In this scenario of rising interest rates, many home buyers are wondering where to get the cheapest home loan rate. It is important to compare interest rates offered by lenders, as the lowest rate will lower your EMIs. Your credit score is also directly linked to the interest rate and is under your control, which affects interest rates.

That said, banks generally offer the cheapest home loans compared to non-bank financial companies (NBFCs). But before zeroing in, choose banks with a good CASA ratio, as these lenders tend to raise their rates at a slower pace than banks with a low ratio. CASA is the ratio of current account and savings account deposits to total bank deposits.

“Several parameters influence your loan rate. But usually, these are the ones that matter the most: a credit score above 750, a stable income, a low loan-to-value ratio and a low loan amount. Other factors that may cause the rate to drop are being a female borrower or having a female loan co-applicant, having a job with well-known companies or governments, having a salary account or other product relationship with the lender, to buy a property from a reputable developer, or refinance an existing loan. Finally, some of the lowest rates in recent months have come from banks, not HFCs,” says Adhil Shetty, CEO of BankBazaar.com.

Here are some of the options available in the market to get the cheapest home loan:

Graphic: Pragati Srivastava
Graphic: Pragati Srivastava

NBFCs may be your second option. Their interest rates are usually higher, but they offer loans tailored to the client’s risk profile. Some of the popular names include Bajaj Finserv and Aditya Birla Housing Finance among others.

Graphic: Pragati Srivastava

Another option is fintech companies such as Navi Finserv. These are popular among millennials and the self-employed for their looser eligibility criteria. But there are downsides as they charge higher interest rates considering the higher risks. With fintech companies taking over the space, even people with low or no credit have a better chance of getting a loan now.

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