Banks vs NBFCs: Who is offering the cheapest home loans?

Rising equated monthly instalments (EMIs) might be a cause of concern for many home loan borrowers as the Reserve Bank of India (RBI) has increased the repo rate by 0.9 per cent since May 4, 2022. Banks have also passed on the entire rate hike to customers leading to a rise in borrowing costs. 

In this rising interest rate scenario, many home buyers wonder where to get the cheapest home loan rate from. It is important to compare interest rates offered by lenders, as the lowest rate will make your EMIs smaller. Your credit score is also directly linked to the interest rate and is within your control, which has a bearing on interest rates. 

Having said that, banks usually offer the cheapest home loans compared to non-banking financial corporations (NBFCs). But before zeroing down, one should go with banks with a good CASA ratio as such lenders tend to raise their rates at a slower pace compared to banks with a low ratio. CASA is the ratio of deposits in current account and savings account to the total deposits of the bank.

“Several parameters influence your loan rate. But typically, these matter the most: a credit score over 750, a stable income, a low loan-to-value, and a low loan quantum. Other factors that may lead to a lower rate are being a woman borrower or having a woman co-applicant on the loan, having employment with well-known corporates or governments, having a salary account or another product relationship with the lender, buying property from a reputed developer, or refinancing an existing loan. Lastly, some of the lowest rates in the last few months have been from banks and not HFCs,” says Adhil Shetty, CEO of BankBazaar.com

Here are some of the options available in the market for getting the cheapest home loan: 

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

Another option is fintech companies such as Navi Finserv. These are popular among millennials and the self-employed for their less-stringent eligibility criteria. But there are downsides as they charge higher interest rates given the higher risks. With fintech companies crowding the space, even people with low or no credit scores have better chances of obtaining a  loan now.

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