Delete Collection?

Are you sure you want to delete this collection permanently?


Delete Collection?

Are you sure you want to delete this collection permanently?

Everyone has a Story to Tell and an Experience to Share!

Let’s Start Writing

What is the difference between Housing Finance Corporations (HFCs) and Banks?

Planning to buy a home, but don’t have enough funds? You can apply for a home loan.

Planning to buy a home, but don’t have enough funds? You can apply for a home loan. There are several housing finance companies (HFCs) and banks that offer home loans at lucrative deals and interest rates. But we often struggle while deciding between these two options. Before picking your choice, it is important that you first clearly understand the differences between the two.

We have listed a few differences between Housing Finance Companies and banks:



1. Types of loans provided:

Housing finance companies only provide housing-related loans like to Apply Home Loans, loan against property and construction loans. Banks, on the other hand, provide different types of loans like personal loans, car loans as well as home loans.

2. Where do they get their funds?

Both banks and HFCs need to generate funds before they start disbursing loans to the customers. The difference lies in the way these funds are generated. Banks lend loans by using the money deposited by customers in current and savings account.

HFCs do not have access to such funds and hence they generate funds in a different way. Reputed HFCs like HDFC and DHFL raise funds by borrowing from the banks as well as from the public. Smaller HFCs generate funds by borrowing from banks. As they use money from banks, the cost of generating funds is higher for HFCs than banks. This is why HFCs charge a higher rate of interest.

3. Which authority sets the rule?

While HFCs are governed by National Housing Bank (NHB), banks are ruled by Reserve Bank of India (RBI). NHB was established to regulate HFCs in 1988, although some aspects of HFCs are still regulated by the RBI.

4. What about their interest rates?

HFCs follow Benchmark Prime Lending Rate (BPLR) model. They fix interest rates based on their average cost of funds. The loan rate that is fixed by HFCs will be given at a discounted rate. Let’s say an HFC’s PLR is 16%. They will discount this rate by a certain amount, say 5%. This discount is decided by each individual HFC.

Interest Rate = PLR – Discount = 16-5 = 11%.

Banks calculate interest rate in a slightly different manner. They first calculate the marginal cost of funds based lending rate (MCLR) which is decided by the RBI. It is the minimum rate below which banks are not allowed to lend to its customers. The interest rate is generally higher than the MCLR. To calculate the interest rate, Spread is added by the banks. Let’s say the MCLR is 8%. If a particular Bank’s Spread is 0.25%, then it’s Interest Rate = MCLR + Spread= 8+0.25 = 8.25%.

Note: As per RBI regulations, once a customer has been given a loan, the bank cannot change that customer’s spread unless there is a change in his/her creditworthiness.

Benefits of HFCs over banks:

• Quicker loan disbursal

• Leniency in documentation, eligibility and credit score assessment

Benefits of banks over HFCs:

• Lower interest rate

• When RBI reduces MCLR, the benefit is promptly passed to the customer

• Long-term savings

Additional Reading: Home Loan: Should it be considered a good debt or bad debt?

Hopefully, you now have a better understanding of banks and HFCs. Make sure you always compare your options carefully and do a thorough research before finalizing your loan.

Related Articles

There is no lack of evidence to support the fact that professionals in the sales sector can achieve performances which are superior to the average professional in the field when they are provided consistent and high-quality sales coaching from their mentors or their managers. The coach assigned with the task works to create improvements in the sales performances of the professionals.

These can be seen in the form of an increase in revenue, acquiring bigger deals, attaining higher close rates, negotiation of higher margins, deeper account penetration, and selling solutions among other major factors. The sales coach does this through imparting a direction and feedback on the performance of the sales professionals, using methods which are tried and tested through analysis of hundreds of sales measurement projects with the participation of organizations from over seventy countries across the world.

To decide whether you require the help of formal sales coaching is done through inspection of the current state of your sales teams and answer some important questions. First, you need to see if the sales goals, which were penned down by you, are being left incomplete due to your sales team having a few 2nd or 3rd quality members. Try to sense if the level of motivation in your sales team is low despite the best efforts of your sales leaders. Ask yourself if you would agree that formal sales coaching can play a role in uplifting the level of performances that your sales representatives have been delivering.

Sales leaders and managers benefit a lot from the core coaching skills and tools which are provided through this coaching. These are essential when it comes to the facilitation of the development of the sales team, which they lead with the help of a consistent process. The focus of the program lies towards contribution to the high level of performance from the sales team through the creation of standards of performance in clear sales, the tools and processes required to make successful sales.

This is accompanied by regular constructive feedback to the sales team for improving the methods and their efficiencies as they work on the development and monitor their sales plans for improvement in their performances. The workshop works for developing the optimal sales strategies, imparting the required knowledge as skills for your professionals and increase the engagement of your sales team along with their satisfaction to create a conductive environment for higher performances.

Reference Image