Private Finance – Is It Safe To Get Home Loans From Private Financiers?By
Who are private financiers and does it make sense to borrow from them? Well, borrowing money is the only option that is available to many of us when in a financial emergency, or when we need to make a down payment on a new house. Most of us approach banks for a home loan. But private financiers or non-banking financial institution (NBFCs) have emerged as a reliable alternative as well for home loan.
A private financier is a non-bank company that loans money, which is secured by a note or a deed of trust, so as to fund your home purchase. Private financiers are more relationship-based than banks, and trust plays a big role in how they carry out their business.
Some of the top private finance organizations in India are:
- India Bulls
- Tata Capital
- Muthoot Housing Finance Limited
- Edelweiss Capital
- Dewan Housing Finance
- M&M Financial Services
Whom should you borrow home loan from?
Now, should you borrow from a bank or from a private finance when you need a home loan? The quick answer to that it, you should borrow from a lender that you trust, and who trusts you enough to approve your loan application.
Consider the example of Vipul Bhandari, a Pune-based IT professional who wanted to buy a home for his young family. Vipul had a steady income and had considerable savings to provide as collateral for the loan.
However, he had bought the plot of land in a remote area and the big banks that he approached were not too keen on offering him a loan as the estimated land value did not meet their high expectations.
Vipul was insistent upon holding on to the land as he felt that it had great potential in the future which the banks refused to see because of their conservative attitude. So he considered the next best option, a private finance or an NBFC.
Vipul saw an ad from Mahindra & Mahindra Financial Services, and that was the company he decided to apply to. Yes, he was aware that private financiers such as M&M Financial Services had much higher interest rates than banks, but they had less restrictive policies as well.
But there was good news in store. Most private finance organizations across the country were able to cut interest rates for home loans at 9.5 percent to 12.75 percent. This was for two reasons – the RBI regulations made it easier for private financiers to work in the industry, and the competitive nature of the business meant that almost every NBFC was in a rush to outdo the competition by offering lower interest rates on home loans.
Private finance – growing demand
Private finance companies in India such as Non-Banking Finance Companies (NBFCs) have now become viable alternatives to traditional banks for getting home loans, business loans, personal loans or car loans. The RBI has been so encouraged by how well such private financiers have adapted themselves to the demands of consumers across the country, and by the reliability of the services offered by them that it has started the process of issuing banking licenses to some of the best performers amongst these companies.
It is not as easy for private finance organizations to offer loans at a lower interest as they don’t have the same access to low cost deposits as banks do. So, many have to devise alternative ways to fund their businesses, such as focusing on high yield segments, faster and more efficient loan recovery, doing their due diligence on the borrower and using a simple process to sanction the loans.
Is there anything that borrowers such as Vipul have to worry about? Some private financiers charge a high fee, which can be disconcerting. Also, the penalties imposed by them in case of a default can seem excessive.
Private finance is faster and efficient
So as long as you are confident in your ability to pay the loan back in time, getting a home from a private financier does make a lot of sense. You will benefit from faster loan processing and will have to deal with less documentation.
The loan application process is quick and efficient and you will get access to the funds very soon, indeed. But be sure to read the fine print as private financiers are exempt from following many of RBI’s strict guidelines and ensure that everything is in order.