Consumer VOICE

NBFC Home Loan Interest Rates

Below are the Lending Rates and Interest Rates of NBFC (Non Banking Financial Companies)

MCLR

RBI governs the lending rates in India for financial transactions by financial institutions. Earlier, RBI used to decide the base rate and all FIs would follow that rate as the minimum lending rate (MLR) . Since April 2016, RBI has been following the marginal cost (of funds based) lending rate (MCLR). RBI has guidelines for revising this rate every month, based on several factors including borrowing rates and the REPO rate (the rate at which RBI lends money to banks).

Floating Rate of Interest

This is the lending rate charged to a loan borrower and is based on MCLR. Any change in MCLR will automatically affect the floating rate (increase or decrease). But the borrower enjoying a floating rate will not usually feel it because when MCLR goes up the tenure also goes up, and vice versa.

If the borrower wants the benefit of reduced EMI consequent to a reduction in the floating ROI, they will need to approach their NBFC, in which case the tenure of the loan (remaining period of loan) may go up accordingly.

Fixed Rate

This is the lending rate charged to a borrower that stays fixed irrespective of any change in MCLR.

Prime Lending Rate

While it is mandatory to pass on the benefits under the MLR system (followed by banks), the same does not apply to the prime lending rate (PLR) system followed by NBFCs. Under the PLR system, when RBI effects changes in MCLR, the PLR rate is kept unaffected as the NBFCs absorb the marginal increase. When MCLR is reduced, the PLR is kept intact and the benefit, if any, is passed on to the borrower on payment of additional process fee after a written request is made for the same. This is true of each decrease in PLR. So, NBFCs are free to set their PLR of their choice.

It is left to the prospective borrower to negotiate the interest rate skillfully with the NBFC to obtain the best rate for themselves.

Processing Fees and Other Charges

NBFCs ask for advance payment of processing charges. The same is collected even when the loan process is incomplete.

Other charges may include charges for:

  • Obtaining statement of account
  • Document retrieval
  • Addition/deletion of co-borrowers
  • CERSAI (central agency where documents are maintained)
  • Database admin
  • External legal opinion
  • Valuation of property

Margin Component

Most NBFCs charge up to 20 per cent of the loan amount as borrower’s stake in the loan, though it is not uniform. NBFCs sometimes increase the margin component (so as to reduce their exposure on the loan amount) in case of certain inadequacies in the borrower’s profile such as inadequate credit score, job profile issues, etc.

Tax Benefits

As per Income Tax Act, there are two sections under which exemptions can be claimed on NBFC home loans, from your gross total income.

Section 80C provides for income deduction up to Rs 150,000 per assessment year for the principal amount of home loan repaid during the same assessment year.

Section 24(b) provides the applicable exemption from payment of tax up to Rs 200,000 per assessment year on the interest component paid during the same year.

For ascertaining the interest component in the EMI (it includes interest and principal component) as well as the principal, you need to take certificates from the NBFC every year for claiming the above exemptions (or ask for amortisation schedule).

Consumer VOICE did home loan comparison of 7 NBFCs on basis of loan amounts, processing charges, rates of interest, eligibility age, repayment periods ad other parameters to recommend the Best Buy, Good Buy and Fair Buy for a home loan from NBFCs.

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