Personal Loans by NBFCs
Non-Banking Finance Companies (NBFC) are an important part of the Indian financial system. They come under the direct supervisions of Reserve Bank of India (RBI. However, the Housing Finance Companies are regulated by National Housing Bank (NHB) a subsidiary of RBI. Personal loans by NBFCs constitute major portions of overall personal loans market in India. In addition to home loans, personal loans are a major revenue stream for NBFCs in India. There are many NBFCs, registered with Reserve Bank of India, which are very active in the personal loan by NBFC segment.
Major NBFCs active in the personal loan segment in India
In addition to the banks especially the private banks many NBFCs are very active in this lucrative and risky segment of Personal Loans. Prominent two NBFCs amongst them are the following:
- Bajaj Finserv Limited– This is part of the Bajaj Group having its registered office in Pune. This is a part of Bajaj Holdings and Investments Limited. It is a very aggressive player in the personal loan segment in India. It operates through more than 20,000 employees and 1,400 locations, spread throughout India. It provides a personal loan to twenty-five lakhs. It provides personal loans to meet varying needs ranging from wedding to honeymoon, from a medical emergency to home improvement etc. It aggressively uses technology to serve its customers. Almost the entire process of personal loan is made online to provide the personal loans at the shortest turnaround time. The use of technology by Bajaj Finserv has ensured that the personal loan process is standardised from submission of documents to letting the customers know his eligibility, amount of EMI etc. The online access to the customer to his loan account ensures better monitoring and servicing from the customers perspective.
- Tata Capital Limited-This is part of the leading business conglomerate of India based out of Mumbai and established in 2007. It has introduced the novel “Salaam Loan Scheme” to help small people with no credit score and regular documents get a personal loan to Rs. 1 lakhs. It provides personal loans for various needs and occasions like wedding, travel and for meeting medical emergencies. It offers innovative products in personal loans by NBFCs sphere. It offers flexible personal loans to match with your anticipated cash flow position. So one can get Step up flex personal loans where the EMI goes up progressively for those who are expecting better cash flow in future. It also offers to step down flex personal loan where the amount of EMI reduces progressively. It is useful for the people who wish to pay a substantial portion of the personal loan at the initial stage itself. It also ensures lower overall interest costs due to a payment of substantial amount during the initial tenure. It also offers borrower another innovative personal loan product called “Bullet Flexi EMI plan” where the borrower can pay part of the principal amount along with the EMI.
In addition to the above NBFCs, many other institutions are also engaged in providing personal loan by NBFCs in India. These include Mahindra Finance Limited, Fullerton India Limited, Capital First etc.
Interest and processing charges
Interest charged on personal loans by NBFCs is generally higher than the banks. The rate of interest on a personal loan from NBFCs varies between 10.99% p.a. to 24% p.a. depending on the credit profile of the borrower. A borrower with a good credit score/history gets a cheaper rate than the one with not so good a credit score. Likewise, the rate of interest for a self-employed person is higher than for a salaried person on the personal loans by NBFCs. Even amongst the self-employed, people with professional qualifications get a lower rate than those not so qualified. Amongst the salaried, those working with reputed top listed companies get better returns than those working for not so reputed companies. In addition to the interest borrower also has to pay a processing fee varying between 0.25% to 3% of the loan amount.
The personal loans by NBFCs have minimum loan tenure of 12 months. The maximum loan tenure available for personal loan by NBFCs is 60 months but some lenders like Tata Capital offer a personal loan for a longer tenure of 72 months. Selecting loan tenure is very important as the loan amount eligibility and the amount of EMI depend on the tenure selected. Though the longer tenure may help you get higher loan amount eligibility at the same time you have to interest for such a long tenure. If you prepay your personal loan from NBFCs, you generally have to pay a prepayment penalty ranging from 1% to 4%. So you have to select the proper loan repayment tenure to ensure that you do not end up paying higher interest or prepayment penalty.
Documents needed for processing the application
The documents needed to be submitted for a personal loan by NBFCs can be divided into two categories. These can be submitted online in case the NBFC has this facility else you will have to submit these documents physically. In the first category of documents are the same for salaried and self-employed. These include documents for basic Know Your Customer(KYC) compliance as per the norms mandated by the Reserve Bank of India from time to time. Under KYC category, you have to establish your identity as well as provide proof for your residence. It can be done with the help of one or more of the documents like PAN card, Aadhaar Card, driving licence, voter ID, telephone and electricity bills, society maintenance bill, property tax receipt of the property or leave and licence agreement.
In the second category are the documents to provide income proof to convince the lender about the proper and timely servicing of the loan. Salaried have to submit documents like salary slip, form no. 16/ITR copy. The self-employed have to submit ITR copies with profit and loss account for last two years to avail personal loans by NBFCs.