Bank vs HFC: Who should you turn to for home loan?

National Housing Bank's proposal to the Narendra Modi government to ease Capital Adequacy Ratio (CAR) has put home loan seekers in limbo as they are now confused whether to go for a bank or the housing finance company (HFC) for availing the home loan. The industry insiders say that right now interest rates levied by the HFC on the home loan are at par with the banks, however, they pointed out that HFCs are slow to pass on interest rate benefits to borrowers.

Elaborating upon the matter Anuj Puri, Chairman - ANAROCK Property Consultants told Zee Business online in a written statement, "Declaring an outright winner among the two options is indeed difficult. Earlier, the steep interest rates of HFCs gave banks an edge. However, now there is a parity between the two as most HFCs offer loans at rates within 8.6 per cent to 11.2 per cent, while banks offer loans at 8.3 per cent to 10.5 per cent. The gap has significantly reduced and buyers may now consider either option." 

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However, giving hint about the interest rate fluctuation Anuj Puri of ANAROCK said, "HFCs are slow to pass on interest rate benefits to borrowers simply because their interest rates are fixed on their average cost of funds since they follow the Benchmark Prime Lending Rate (BPLR) model. Banks follow the Marginal Cost of Funds-based Lending Rate (MCLR) model, which is governed by the RBI and ensures that rate cuts are passed on to customers quickly."

Speaking about the requirements of the home buyers and two available options Amit Raheja, CMD, Wealth Clinic “The choice between the HFC and the bank is totally up to the lender. It all depends on the facilities that the lender wants. If he wants a banking facility along with the convenience of a home loan facility, then banks are preferred, else HFCs are a good option. There are also buyers whose credit scores are not very high and in that scenario HFCs are more likely to provide home loans instead of banks. Interest rates of HFCs do not decrease in the ratio as bank rates, as HFCs and banks follow different operating model."

Standing in sync with Amit Raheja's views Rajesh Goyal, Vice President, CREDAI — NCR chapter said, "To decide which one to choose depends totally on the lender, his requirements, his credit rating etc. As a matter of fact, the paperwork is a little easier in case of HFCs as against the bank that has stricter guidelines.”