Choosing between banks & NBFCs: Data-backed Home Loan Comparison

Key Takeaways: 

• Picking between a bank and an NBFC is less about the labels and more about which one matches your financial profile and priorities. 
• Banks usually win on lower rates and tighter regulation, but they expect higher credit scores and more documentation. 
• NBFCs give faster approvals, easier access for self-employed buyers, and flexible repayment structures, though often at a slightly higher cost. 
• A balance transfer later is always an option, many start with NBFCs for speed, then shift to banks for lower long-term rates. 
• Safety comes down to your comfort: banks bring more stability, while NBFCs bring more accessibility. 
• The right choice depends on what matters more to you right now—lower cost, quicker approval, or flexibility. 

Overview: Banks vs NBFCs for home loans

Getting a home loan is easy today—but choosing the right lender is where it gets serious. With over 80% of property buyers relying on financing, the decision between a bank and an NBFC (Non-Banking Financial Company) isn’t just about rates; it affects your approval speed, documentation process, and long-term cost.

Public sector banks have recently grabbed a 43% market share in new home loans as of FY25, overtaking private lenders, thanks to competitive rates and government push.  At the same time, NBFCs' housing loan portfolios are growing in response to relaxed eligibility norms and faster processing, making them attractive for self-employed and credit-challenged borrowers. Interest rates are at their lowest in years, banks are now offering home loans starting around 7.35% to 7.8%, and select NBFCs have similarly low rates starting near 8%. 

In this blog, you’ll get a data-backed, unbiased comparison of banks vs NBFCs for home loans in India, covering the difference between NBFC and bank, eligibility criteria, real-time interest trends, pros and cons of each, and how to choose the right option based on your profile and goals.

Understanding Banks vs NBFCs

Before we get into comparisons, it's important to understand who we’re comparing. Banks and NBFCs (Non-Banking Financial Companies) both offer home loans in India, but the way they’re regulated, how they source their funds, and whom they serve are fundamentally different.

Banks are regulated under the Banking Regulation Act, 1949, and operate directly under the Reserve Bank of India (RBI). They offer a wide range of financial services, savings accounts, fixed deposits, and credit cards, and are required to maintain liquidity buffers like CRR and SLR. Their lending practices are strictly governed, which is why bank home loans often come with lower interest rates and more rigid eligibility checks.

NBFCs, on the other hand, are governed under the Companies Act, 2013, and while they fall under the RBI’s regulatory umbrella, they don’t follow the same rules as banks. They don’t accept demand deposits and aren’t part of deposit insurance schemes. But that freedom also gives them one major edge—flexibility. NBFCs can design home loan products that cater to borrowers who may not qualify under a bank’s strict filters. This includes self-employed individuals, gig workers, people with limited credit history, or buyers with more complex financial structures.

This structural difference directly impacts the home loan experience. Banks may offer better rates and long-term security, but NBFCs often win when it comes to faster processing, lower paperwork, and personalized loan terms. Knowing this distinction helps you align your loan source with your profile, not just your interest rate.

Banks vs NBFCs: A Core Comparison That Affects Your Loan

When applying for a home loan in India, most borrowers focus on the interest rate, but that’s just one part of the equation. The real difference between a bank loan and an NBFC loan is how each institution handles eligibility, processing, repayment flexibility, and overall borrower experience.

Here’s how the two stack up:

Interest Rate Structure:

Banks typically offer slightly lower interest rates because their lending is linked to the RBI’s repo rate. For example, major public and private banks currently offer home loans starting at 7.35% to 7.8% (source).

NBFCs, however, operate on internal benchmark rates, which give them pricing flexibility. Their rates often start around 8%, though many offer fixed or hybrid rate options that protect borrowers from future hikes.

Eligibility & Documentation:

Banks are stricter, expecting credit scores above 750, steady income proof, and detailed documentation. NBFCs, in contrast, are more accommodating to self-employed individuals, freelancers, or first-time borrowers with less conventional income proofs.

Processing Time:

NBFCs tend to process loans faster. While a bank might take 7–10 working days, many NBFCs offer approvals in 48–72 hours, especially through digital-first models.

Loan Customization:

NBFCs allow more flexibility in structuring the loan—whether it’s including stamp duty and registration costs into the loan amount or offering longer tenures for specific profiles. Banks have more standardized products with limited scope for customization.

After-Sales Support & Experience:

While banks offer a more institutional process, NBFCs often provide a more personalized approach. Their service teams tend to focus on loan servicing and relationship management post-disbursal.

In short, if you want a regulated, low-cost, long-term loan with standardised processes, a bank may suit you better. But if you value speed, flexibility, and accessibility, especially with a non-traditional financial profile, an NBFC might be the more practical route.

Advantages and Disadvantages of Banks vs NBFCs

There’s no universally better lender—just the one that aligns better with your financial profile. Here’s a clear, side-by-side view of what each option offers and where they may fall short:

Advantages of Taking a Home Loan from a Bank

• Typically lower interest rates, especially for salaried applicants with strong credit profiles
• Tighter regulatory oversight under RBI, offering a sense of institutional trust
• Wider loan product options, including overdraft-linked home loans
• Lower processing fees, especially with public sector banks

Disadvantages of Banks

• Strict eligibility norms; limited access for self-employed or irregular income earners
• Slower disbursal timelines and more documentationStandardised processes with limited scope for loan customisation

Advantages of Taking a Home Loan from an NBFC

• Easier eligibility for non-salaried, self-employed, or low-credit-score applicants
• Faster loan processing, often with minimal paperwork
• Greater flexibility in structuring repayment plans and including charges like stamp duty
• Personalised service and quicker query resolution in many cases

Disadvantages of NBFCs

• Slightly higher interest rates compared to banks
• Not all NBFCs have the same depth of financial security or long-term servicing capability
• Fewer legacy safeguards like deposit insurance or overdraft-linked loan accounts

This comparison is meant to help you weigh real-world trade-offs, not just pick based on rate cards. The next section will make it easier to decide which route fits your borrowing profile best.

Who Should Choose What?

If you're deciding between a bank and an NBFC for your home loan, the right choice depends on your income type, how quickly you need the loan, and how comfortable you are with paperwork.

Here’s a simple way to look at it:

Go with a bank if you:

• Have a regular salaried job
• Can show a good credit score
• Prefer lower interest rates and a more traditional process
• Don’t mind waiting a few extra days for loan approval

Go with an NBFC if you:

• Are you self-employed or have irregular income
• Need the loan processed quickly
• Want a bit more flexibility with documents or repayment plans
• Have a lower credit score that might not meet bank standards

There’s no one-size-fits-all answer here. It’s about finding what works best for your current situation. If you're clear on what you need, the choice becomes a lot easier. 

Conclusion: Banks vs NBFCs for home loans

When you’re taking a home loan, the lender you choose matters just as much as the property you’re buying. A good fit can make the entire process smoother, from the day you apply to the day you make your last payment.

Banks bring structure, lower rates, and a strong regulatory setup. NBFCs offer more room to breathe, especially if your income isn’t textbook or you’re looking for quicker approvals.

There’s no right or wrong answer. It really comes down to who understands your situation better. If you’re salaried with a high credit score, a bank might work just fine. But if you need flexibility or speed, an NBFC could be the better choice.

Take your time. Compare a few options. And always ask yourself, what matters more right now: the rate, the speed, or the support? That clarity will usually point you in the right direction.

FAQs: Banks vs NBFCs for home loans

1. Are home loan interest rates always lower at banks compared to NBFCs? 

Banks usually have lower starting rates because their lending is linked to the RBI’s repo rate. However, NBFCs have more flexibility in pricing and may offer competitive rates for certain profiles. The difference isn’t huge, but over the loan tenure, even 0.25% can matter.

2. Do NBFCs approve loans faster than banks?

NBFCs are known for quicker processing, sometimes in as little as 48–72 hours. Banks typically take longer (about a week or more) because of their stricter checks and layered approval systems.

3. If I have a low credit score, should I apply to an NBFC instead of a bank?

It depends. NBFCs are generally more accommodating for borrowers with lower scores or irregular income. But you’ll likely pay a slightly higher interest rate. If improving your score isn’t an immediate option, an NBFC may be the practical route.

4. Can I transfer my home loan from an NBFC to a bank later?

Many borrowers take a loan from an NBFC for quick approval or flexible terms and later refinance with a bank to enjoy lower interest rates. This is called a balance transfer, and it’s a common strategy.

5. Which option is safer in the long run, banks or NBFCs?

Both are regulated by the RBI, but banks follow stricter norms and offer more institutional security. NBFCs are safe too, but their flexibility sometimes comes with slightly higher costs. For long-term peace of mind, banks are usually seen as the more stable option, while NBFCs are better when you need accessibility and speed.