NBFC vs bank loan: Which is better for personal loans? Pros and cons explained

Borrowers typically have to make a choice between traditional banks and NBFCs when considering a personal loan. Each is different in the advantages and disadvantages, and this article discusses the pros and cons of availing a personal loan from NBFCs compared to banks.

Understanding banks and NBFCs

• Banks are regulated financial institutions that are allowed to take deposits, provide personal loans, and offer a wide range of other financial services and products. They are subject to the strictest regulations, governed by the RBI, which ensures a high degree of dependability and stability.
• NBFCs provide financial services, such as loans and credit facilities, that are similar to those offered by banks. Despite all these prohibitions, NBFCs are necessary for extending credit to a range of industries, which supports financial inclusion.

Pros of taking a personal loan from a bank

• Lower interest rates: Banks also provide personal loans with low interest rates, especially to customers with a good credit score. These can result in significant savings over the loan's duration.
• Financial services diversification: In addition to personal loans, banks also offer a range of financial services, allowing customers to consolidate multiple financial requirements into a single package.

Cons of taking a personal loan from a bank

• Strict eligibility conditions: Banks impose relatively higher eligibility conditions, as they require an improved credit score and income verification that might eliminate some candidates.
• Higher processing times: Due to the manual verification process involved, banks take longer to disburse and sanction personal loans.

Pros of taking a personal loan from NBFCs

• Flexible eligibility criteria: NBFCs have more relaxed eligibility criteria, in which they provide accommodation to people with non-traditional income sources.
• Faster processing: NBFCs are likely to disburse and grant loans more quickly than traditional banks, thanks to their streamlined processes and reduced paperwork.

Cons of taking a personal loan from NBFCs

• Higher interest rates: NBFCs can charge higher interest rates than banks to compensate for the increased risk associated with more relaxed qualification standards.
• Restricted financial services: Unlike banks, NBFCs primarily deal in targeted financial products and offer a limited range of services.

Making the right choice

It is essential to compare various NBFCs and banks before selecting one for a personal loan. You should understand:

1. Your creditworthiness: To discover lender approval potential for your loan application, along with favourable terms, you need to determine your financial position regarding creditworthiness.
2. Compare terms: Obtain the most economical option by comparing the entire spectrum of bank and NBFC fees along with interest rates. Keeping the same factor in mind, here are the applicable personal loan interest rates in October 2025 as provided by leading financial institutions and banks

Personal loan interest rates October 2025

Source: Bank websites

Note: The interest rates mentioned above are illustrative in nature and subject to change as per each bank’s internal policies and applicant profile. Readers are advised to verify details on the respective bank's website before applying.

In conclusion, in the case of personal loans, both banks and NBFCs have distinct advantages and disadvantages. You can make the most of your loan option by thoughtfully considering these factors based on your specific financial circumstances and requirements.

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Disclaimer: Mint has a partnership with fintech companies to offer credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article aims to educate readers and raise awareness about the essential needs for credit, including loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with risks such as high interest rates and hidden charges. We advise investors to discuss with certified experts before taking any credit.