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Banks or Housing Finance Company: Which is better for Home Loan?

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Author - Sanyam Jain
Banks or Housing Finance Company: Which is better for Home Loan?

Buying a home is one of the most common dream of all of us. But in today's times, with the economy and the ever-increasing inflation rate, it is hardly possible for an average man to arrange funds to buy a house. In all such cases, the most simple and yet most efficient answer is a Home Loan.

A Home Loan provides you with the kind of money you need to purchase a house, and you can later repay this amount in the years to come. The long tenure does not put that much pressure on one's mind and/or pocket and allows you to enjoy the comfort of your own home.

Now, the question that arises is For getting a Home Loan in India, which one is better - Bank or HFC?

Let us look at the various pros and cons of both - getting a Home loan from a bank and getting a Home Loan from a HFC.

Getting a Home Loan from Banks


  • Faster passing on of interest rates: The interest rates charged on loans by banks are linked to an external benchmark such as Repo Rate or TBLR as compared to HFC, whose rates are linked with PLR, and this arrangement allows the banks to pass on interest rates to their customers faster.
  • Overdraft Facility: A home loan is a long-term financial liability with high interest costs. The banks allow the borrowers the overdraft facility to deposit surplus funds in their loan accounts. Any amount above the EMI is considered as pre-payments on the principal amount. This feature reduces the principal amount and thus reduces the burden on the customer.
  • Better interest rates : Even though banks can be a little strict with their credit score requirements and a few other necessary conditions, but once a customer (borrower) satisfies these terms and conditions and becomes eligible, the banks can provide attractive interest rates, especially to borrowers with excellent credit scores.

Check and compare the interest rates of different banks:


  • Complex process : Banks follow a very strict and complex documentation process and hence it takes a longer period of time for a home loan application to process.
  • Need a high credit score : The banks demand a high credit score (above 750), and in case your credit score is below that, there is a high chance of you not getting your home loan approved or at a much higher rate.
  • Lower loan quantum : Unlike HFCs, banks generally do not include stamp duty and registration charges in the home loan amount. This leads to a comparatively lower loan quantum for the borrower.

Now, let us look at the pros and cons of getting a home loan from HFCs.

Getting a Home Loan from HFCs:-


  • Simpler process : The documentation process is much simpler and less time-consuming in case of HFCss. HFCs are much more flexible and have a very speedy process as compared to the banks.
  • Open to lower credit scores : Unlike banks, HFCs are open to providing loans to borrowers with even lower credit scores. This is because HFCs have their own credit scoring models, and based on that, they decide the creditworthiness of a borrower.
  • Higher loan quantum : HFCs includes stamp duty and registrations costs in the property's market valuation. This increases the loan quantum to some extent and the borrower is able to procure some extra funds.


  • Higher interest rates: HFCs charge a higher rate of interest as compared to the banks.
  • Slower in passing on interest rates: Since the HFCs base their lending rates on PLR instead of Repo Rate, it makes them much slower in passing on the interest rates to the borrowers and hence you may not get the best interest rate available in this case.
  • No overdraft facility : One of the major drawbacks of getting a home loan from a HFC is that they do not provide any overdraft facility. Overdraft facility reduces the borrower’s liability to quite some extent and proves vital in the long term. Not having this facility at your disposal can be devastating in the future.

Even though both Banks and HFCs have their distinct pros and cons, the pros of getting a home loan from a bank far outweighs the cons.

So if you fulfill the below requirements or if these conditions match and suit your situation, you can apply for a home loan from a bank:

  • Looking for a transparent interest rate
  • Have a credit score above 750
  • Can wait for a bit longer loan-processing time
  • Can fulfill the eligibility criteria of the bank

Once you meet all these requirements, you can move ahead with your home loan application.

In case you somehow can not manage these criteria, there is always an option to go for HFCs.

About Author

Sanyam Jain
Highly motivated and utterly skilled, a young and zealous writer trying to follow his passion for the love of the English language. Written for different niches for over three years, now writing for the finance sector. When writing for a financial product you learn a new thing everyday.

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