Borrowers can take loans from banks and non-banking financial companies (NBFCs). While both have their own pros and cons, an applicant should make an informed choice after analyzing several factors such as interest rates, processing fees, loan tenure, LTV ratios (in case of secured loans), repayment facilities etc.

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According to Vivek Banka, founding member of Goal Teller, banks typically have lower rates, while NBFC's have a higher rate of interest as their cost of borrowing is higher than banks. This means borrowers who opt for NBFCs may end up paying more.

Another important aspect is dispute resolution. As a consumer, it is potentially easier to seek redressal of disputes from a bank when compared to an NBFC.

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However, banks generally have stricter rules and regulations in their credit processes. This is not the case in NBFCs, which typically offer high degree of flexibility while processing loan applications.

Now, this means that customers who wish to borrow without putting too much efforts should go for NBFCs.

“NBFCs are usually more open in lending to people with poorer credit profiles. Hence, those who fail to avail loans from banks due to their inadequate loan eligibility can even avail loans from NBFCs/HFCs,” suggests Gaurav Aggarwal, Director of Unsecured Loans at Paisabazaar.

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Additionally, if one were to take loans on white goods/consumer durable products like washing machines, dishwashers, etc then an NBFC could be the only or the easiest option.

"NBFC's like Bajaj FInance/ HDB Financial Services, etc would not only provide faster and quicker turnaround times, but their loan rates would also be competitive as their cost of funds is low due to their respective creditworthiness," opines Banka.

In words of Kailashnath Adhikari, Managing Director, Governance Now - A Sri Adhikari Brothers Enterprise, it's okay to go for NBFCs if the genuine needs are met timely by it.

“However, the rider to this comes when the credit requirement is for productive purposes. The return expected by an NBFC is high thus proper diligence on the part of the borrower is needed with respect to their repaying capacity," adds Adhikari.

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