Personal loans have emerged as one of the go-to financial products in India that gives a flexible solution for multiple requirements which may include home improvement, health emergencies, or even to pay off other short term loans. Banks have been predominantly the providers of personal loan facilities while non banking finance companies (NBFCs) have increasingly come to occupy a large share of this market.

What are NBFCs?

NBFCs are financial institutions which offer diverse financial products and services but are not restricted by the RBI like banks. They are mainly involved in offering loans such as personal loans, Short term loans, home loans, car loans, and business loans among others. They typically provide better offers with APR and offer an approval process that is faster compared to banks.

Types of NBFCs in India

NBFCs come in various forms, each serving specific purposes and customer segments. Here are the main types:

• Asset Finance Companies (AFCs): Focus on financing the acquisition of physical assets such as machinery, equipment, and vehicles.
• Investment Companies (ICs): Primarily invest in securities and other financial assets.
• Loan Companies (LCs): Provide loans and credit to individuals and businesses without focusing on asset financing.
• Infrastructure Finance Companies (IFCs): Offer financing for large-scale infrastructure projects like roads, ports, and power plants.
• Microfinance Institutions (MFIs): Provide small loans to low-income individuals, often targeting rural areas to support financial inclusion.
• Housing Finance Companies (HFCs): Specialize in financing housing loans to individuals and real estate development.
• Core Investment Companies (CICs): Invest in shares and securities but do not involve direct lending activities.

These types allow NBFCs to cater to various needs, from small loans for rural families to large infrastructure financing.

Difference Between NBFCs and Banks

Though both banks & NBFCs in India function in almost a similar manner by providing various financial services, some differences exists between the two. NBFCs cannot take demand deposits and this makes their lending criteria less rigid compared to banks. This flexibility has enabled NBFCs to grow very fast in India.

Growth of NBFCs in India

The NBFC sector in India has been growing at a fast pace in the recent past due to the growing need for credit products especially in rural and sub-urban regions. As per RBI statistics, the size of NBFC sector was pegged at Rs 54 Lakh crores in 2021, which was equivalent of 25% of the asset size of whole banking sector. Furthermore, the advancement of technology & digitization has put NBFCs under the limelight making them the prime choice for getting personal loans online.

The Role of NBFCs in India’s Economy

NBFCs are pivotal in advancing financial inclusion, especially in underserved areas, and contribute to multiple facets of economic development:

• Bridging the Credit Gap: NBFCs serve segments that traditional banks may not, such as small businesses, rural populations, and low-income individuals, providing critical financing and expanding credit access.
• Supporting MSMEs: Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s economy, contributing significantly to employment and GDP. NBFCs are instrumental in offering working capital and credit to these enterprises, helping them grow and compete in the market.
• Driving Innovation in Financial Services: NBFCs often leverage technology to deliver quick, efficient, and customized financial solutions. This has led to innovations like online loan applications, instant approval processes, and improved customer experiences.
• Boosting Infrastructure Development: Infrastructure Finance Companies (IFCs) play a vital role in financing India’s large-scale infrastructure projects, such as transportation networks, energy projects, and urban development, fueling economic growth.

Advantages of Getting a Personal Loan from NBFCs in India

1. Easy Accessibility : In general, NBFCs in India are known to have lenient criteria for personal loan eligibility than the incumbent commercial banks, thus making personal loans more accessible to a broader audience.
2. Competitive Interest Rates : The interest rates offered by NBFCs may vary from organization to organization but they are generally competitive with those offered by banks and sometimes even slightly lower.
3. Online Convenience: The process of application for a personal loan online with NBFCs is easy, smooth, convenient and hassle-free.
4. Flexible Repayment Options :  The NBFCs usually provide flexible repayment options and allow consumers to decide on a payment tenure that is convenient for them in accordance to their financial situation.
5. Minimal Documentation : The online loan application process is almost completely digital and does not involve much paperwork, thereby making it possible to get a loan faster.

Risks and Precautions

While online personal loans from NBFCs offer many benefits, there are also some risks to be aware of:

• Over-borrowing: Being able to easily obtain loans causes one to borrow beyond their ability to afford to pay back.
• Predatory Lending: Be careful of the lenders that provide options that seem too good to be true or force you to take a loan.
• Data Privacy: Make sure that the Personal loan provider company you choose has comprehensive safety measures that secure your identity and financial data.

Future Outlook

The technological advancement is rapidly evolving Non-Banking Finance Companies (NBFCs), improving the convenience and speed of availing personal loans online. Technological progress and increased Internet usage further indicates that the market for online personal loans will expand significantly in the next few years. In addition, advances like the use of artificial intelligence and machine learning in credit risk evaluations have also boosted the loan approval process to take less time and be more efficient for the borrowers.

Practical Tips for Borrowers

• How to Choose the Right NBFC : Before applying, find out about the NBFC’s track record, interest rates, and clients’ feedback. Go through some of the Best personal loan apps in India and chose the one you find reliable.

• Understanding Your Loan Requirements : Choose a loan amount, tenure, and repayment potential that will not put pressure on your financial muscles. Do a thorough research about their terms & conditions

Tips to Improve Loan Approval Chances

Its actually simple, Always pay all your bills on time to help you have a good credit rating, give correct details and ensure all the documents you have shared meet the requirements of the lender.

Conclusion

NBFCs in India have brought great relief to borrow personal loans online without any difficulty. They are faster and in many cases a more preferable solution compared to traditional bank financing. However, there is one thing that must be noted about such loans, and that is that they have to be taken responsibly, the customer should compare the offers of different companies, and only then take the amount of money that can be returned on time.

As many financial choices, it is always better to know more, and always read fine print on the agreements you are about to sign; maybe, consulting with a financial planner is a good option if you’re not sure. Thus, when availing personal loans online for your financing needs, you can reap all the opportunities inherent in it, but, at the same time, bypass all the possible negative consequences, contributing to the achievement of your financial objectives.