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What Loan is better: Bank vs NBFC Personal Loan Comparison?

Submitted by admin on February 2nd, 2026

In India, the most popular financial products are personal loans. Banks and Non-Banking Financial Companies (NBFCs) provide the borrowers with an option of borrowing. Although both of them provide similar services, some of their major differences are in the interest rates, speed of approval, eligibility and flexibility. Knowing these differences will assist you to make the correct decision.

Interest Rates

Interest rates through banks are usually lower than the NBFCs. The banks are able to offer individual loans at reasonable rates because the Reserve Bank of India (RBI) regulates banks and offers them low-cost funds.

On the other hand, NBFCs tend to give higher rates of interest as they do not take loans on the market. Nevertheless, they can provide tailor-made loan services to certain customer segments.

Winner: Banks (lowest interest rates)

Eligibility Criteria

The eligibility requirements are usually more stringent in the banks. They like those borrowers who have a predictable income, healthy credit rating, and positive financial record. This complicates access of bank loans by self-employed people or those with poor CIBIL ratings.

NBFCs have less rigid eligibility requirements. They tend to give loans to the customer with an average credit rating or inconsistent flow of income.

Winner: NBFCs (easy eligibility)

Loan Approval Speed

The problem with banks is that they tend to be in a system of approval that may require days. The loan disbursement could be hindered by documentation and verification processes.

NBFCs are characterized by a quick disbursement and rapid approval of loans. There are numerous NBFCs that are instant online personal loans that require little documentation.

Winner: NBFCs (faster processing)

Documentation Requirements

Banks need extensive paperwork, such as proof of income, bank statements, identity proof and address proof. This guarantees reduced risk and more time processing.

The NBFCs tend to ask less documentation and provide online application procedures and this makes them easier to borrow by the clients.

Winner: NBFCs (less complicated documentation)

Loan Amount and Tenure

Banks tend to provide loans at increased amounts and duration of repayment. This renders them appropriate to those borrowers that seek huge personal loans at reasonable EMIs.

The NBFCs can be providing relatively lesser amounts of loans and shorter terms, but some major NBFCs have now offered competitive limits.

Loser: Consumers (low loan limits)

Trust and Stability of the Customers

Strict regulation is said to be more secure and reliable of banks. Banks are usually trusted by borrowers in financial investments in the long run.

The RBI also regulates NBFCs but they are seen to be less stable than banks. Nevertheless, over the last several years several established NBFCs have developed a good reputation.

Winner: Banks (higher trust)

Summary: Bank vs. NBFC Which is the best?

The answer does not fit all. Banks are the best where there are borrowers who have high credit scores and are seeking low interest rates and a high loan amount. NBFCs would suit individuals who require fast processing of their loan, relaxed eligibility, and relaxed documentation.

Compare interest rate, processing cost, tenure and flexibility of repayment before deciding on the lender. A decision that will be made will assist you in getting the most suitable personal loan that would meet your financial requirements.