In India, when people or businesses need loans, they often go to banks. But in recent years, Non-Banking Financial Companies (NBFCs) have become a popular option too. One of the biggest reasons people compare NBFCs and banks is because of interest rates. But which one offers better rates? And what else should you know before choosing between the two?
In this blog, we will explain:
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What interest rates are
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The differences in rates between NBFCs and banks
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How NBFCs work
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Important licenses like NBFC Registration with RBI, NBFC Account Aggregator License, PPI License, and P2P Lending License
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Which option may be better for you
Let’s get started.
What Is an Interest Rate?
An interest rate is the cost of borrowing money. When you take a loan, you repay the amount with an extra charge, known as interest. This is how lenders earn money.
For example, if you borrow ₹1,00,000 at an interest rate of 10% per year, you will pay ₹10,000 extra at the end of the year. So, total repayment becomes ₹1,10,000.
What Is the Role of Banks and NBFCs?
Banks
Banks are regulated by the Reserve Bank of India (RBI). They accept deposits, offer loans, and provide other services like savings accounts and credit cards. Because they follow strict RBI rules, their interest rates are usually controlled and may be lower.
NBFCs
NBFCs also offer loans and financial services, but they cannot accept regular deposits like savings accounts. They are also regulated by the RBI but with a bit more flexibility. That’s why they can charge different interest rates based on the risk and type of borrower.
Interest Rates: NBFCs vs. Banks
Let’s break down the main differences:
Why Are NBFC Interest Rates Higher?
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They take on more risk
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Often serve people with low credit scores
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Provide quick approvals and customized services
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They don’t get cheap funds like banks
For example, if a bank gives a personal loan at 11%, an NBFC may offer it at 14% to 20%, depending on your profile.
When Are NBFCs a Good Choice?
Even though their interest rates are higher, NBFCs are useful when:
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You need quick funds
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Your credit score is low
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You’re a startup or small business
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You don’t have regular income proof
NBFCs offer a lifeline to those who may not qualify for traditional bank loans.
NBFC Registration with RBI
If you want to start an NBFC in India, the first step is to get NBFC Registration with the RBI. This is important because it shows that your company is following RBI rules and can legally give loans or offer financial services.
There are different types of NBFCs like:
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Loan companies
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Investment companies
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Infrastructure finance companies
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Account aggregator companies
Each type needs different documents and follows a specific set of rules.
NBFC Account Aggregator License Online
One of the newer and exciting roles NBFCs can play is that of an Account Aggregator. An NBFC Account Aggregator helps collect and share financial information between different institutions (like banks, insurers, etc.) in a secure way.
To do this, an NBFC must apply for an NBFC Account Aggregator License online from RBI. This helps improve customer experience by allowing them to access their data across multiple platforms from one place.
For example, instead of giving your bank statement, IT return, and salary slips separately to apply for a loan, an account aggregator can collect and share this info quickly and safely.
PPI License Apply Online
PPI stands for Prepaid Payment Instruments. These are services like wallets, gift cards, and prepaid cards.
NBFCs or fintech companies offering digital wallet services need to apply for a PPI license online. This license is also issued by RBI.
With a PPI license, a company can allow users to load money into a wallet and use it for online shopping, bills, or sending money. Some well-known PPI services include PhonePe, Paytm Wallet, and Amazon Pay.
P2P Lending License Online
Peer-to-Peer (P2P) lending is another innovative service offered by NBFCs. It allows people to lend and borrow money directly from each other through an online platform, without a traditional bank in the middle.
To operate such a platform, you need a P2P lending license online, which is also regulated by the RBI.
In this model:
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Lenders earn interest
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Borrowers get easy access to funds
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The platform acts as a bridge between both
It’s a win-win when managed properly.
Conclusion
Choosing between NBFCs and banks depends on your financial needs and situation.
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Banks are good for low-interest loans and regular financial services.
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NBFCs offer quick, flexible, and accessible loan options—though at higher interest rates.
NBFCs are also becoming more advanced with services like account aggregators, digital wallets, and P2P lending platforms. But to offer these, they must go through the right NBFC registration with RBI and obtain other licenses like NBFC Account Aggregator License, PPI License, and P2P Lending License, all of which can now be applied for online.
Before taking a loan, compare both options. If you need speed and flexibility, NBFCs are great. If you need low interest and have time, banks may be better.
Need help with NBFC registration or license applications?
We can guide you through the process of NBFC registration with RBI, help you apply online for a PPI license, and also support you with getting your P2P lending license or Account Aggregator license.
