Soft Credit Check vs Hard Credit Check in Personal Loans: Key Differences Explained
June 07, 2026 | 4 mins read
Quick Overview
- NBFC stands for Non-Banking Financial Company.
- NBFCs play a crucial role in expanding access to credit across India.
- They offer a wide range of financial solutions, including personal loans.
- Personal loans from NBFCs are generally unsecured and require minimal documentation.
- Many NBFCs provide digital application journeys and faster loan approvals.
- NBFCs are regulated by the Reserve Bank of India (RBI).
- Borrowers should compare interest rates, fees, eligibility criteria, and service quality before choosing a lender.
Summary
If you're wondering what NBFC is and how it helps borrowers, an NBFC is a financial institution that provides loans and other financial services without holding a banking licence. NBFCs bridge credit gaps, especially for customers who may not always fit traditional banking criteria. They offer personal loans with simplified documentation, digital applications, flexible repayment options, and competitive interest rates. Understanding the difference between NBFCs and banks can help borrowers choose the right lending partner based on their financial needs.
Introduction
A Non-Banking Financial Company (NBFC) is a financial institution that provides various lending and financial services without operating as a traditional bank. Over the years, NBFC companies in India have become an important part of the financial ecosystem by helping individuals and businesses access credit more easily.
Whether you need funds for medical expenses, home renovation, education, travel, debt consolidation, or any other personal requirement, NBFC lending solutions can offer convenient financing options. Many NBFCs today provide personal loans through digital platforms, enabling quicker approvals and faster disbursals.
What Is an NBFC?
NBFC Full Form and Meaning
The NBFC full form is Non-Banking Financial Company. The NBFC meaning refers to a financial institution registered under the Companies Act that offers financial products and services similar to banks but does not hold a banking licence.
When people ask what is a non-banking financial company, the simple answer is that it is an institution engaged in lending, investment, financing, and other financial activities without accepting demand deposits like a traditional bank.
Role of NBFCs in India's Financial System
The role of NBFCs in India has expanded significantly over the last few decades. These institutions help improve financial inclusion by reaching underserved populations, self-employed individuals, small businesses, and borrowers in semi-urban and rural locations.
NBFCs complement the banking sector by filling credit gaps and supporting economic growth through various lending and financing solutions.
Why NBFCs Are Important for Borrowers
NBFCs provide borrowers with access to funding when traditional lending options may not be readily available. Their customer-focused approach, faster processing, and flexible eligibility criteria make them a preferred choice for many borrowers.
How Does an NBFC Work?
Sources of Funding for NBFCs
Unlike banks, NBFCs do not primarily rely on demand deposits. Instead, they raise funds through:
- Borrowings from banks
- Financial institutions
- Debentures and bonds
- Capital market instruments
- Other approved funding sources
These funds are then used to provide loans and other financial products.
Financial Services Offered by NBFCs
NBFC services typically include:
- Personal loans
- Business loans
- Vehicle financing
- Consumer durable financing
- Home loans
- Loan against property
- Investment services
- Asset financing
The variety of NBFC services enables customers to choose financing solutions based on their unique requirements.
How NBFCs Generate Revenue
An NBFC finance company earns revenue primarily through:
- Interest income on loans
- Processing fees
- Service charges
- Investment income
- Other financial services
The interest paid by borrowers forms a significant portion of their revenue model.
Types of NBFCs in India
Understanding the types of NBFCs in India helps borrowers identify institutions based on their specialisation.
Investment and Credit Companies
Investment and Credit Companies (ICCs) are among the most common types of NBFCs. They provide loans, credit facilities, and investment-related services to individuals and businesses.
Infrastructure Finance Companies
Infrastructure Finance Companies support large-scale infrastructure projects such as roads, transportation systems, power generation facilities, and urban development initiatives.
Housing Finance Companies
Housing Finance Companies focus on home financing products, helping individuals purchase, construct, or renovate residential properties.
Other Specialised NBFC Categories
Additional categories include:
- Asset Finance Companies
- Microfinance Institutions
- Core Investment Companies
- Infrastructure Debt Funds
- Mortgage Guarantee Companies
Each category serves a specific segment of the financial market.
How NBFCs Provide Personal Loans
Eligibility Assessment Process
When applying for a personal loan, NBFCs evaluate factors such as:
- Age
- Employment status
- Income stability
- Residential status
- Existing financial obligations
Eligibility criteria may vary across lenders.
Credit Evaluation and Documentation
The lender reviews the applicant's credit profile and verifies supporting documents. Common requirements may include:
- Identity proof
- Address proof
- Income proof
- PAN card
- Bank statements
Digital verification processes have significantly simplified documentation requirements.
Loan Approval and Disbursal
Once verification is complete, the loan application is assessed. Eligible borrowers may receive approval quickly, and funds are generally disbursed directly to their bank account.
Many leading NBFCs offer personal loans with loan amounts up to ₹30 lakh, repayment tenures up to 72 months, and interest rates starting from 11% per annum, subject to eligibility and credit assessment.
Also read: What is Personal Loan and How Personal Loan Works?
Features of Personal Loans Offered by NBFCs
Unsecured Borrowing
Personal loans are generally unsecured, meaning borrowers do not need to pledge collateral or provide a guarantor.
Flexible Loan Amounts and Tenures
Borrowers can typically choose loan amounts and repayment tenures based on their financial requirements and repayment capacity. Flexible repayment structures help improve affordability.
Digital Application and Faster Processing
Modern NBFC lending processes leverage technology to provide:
- Online applications
- Digital verification
- Quick approvals
- Faster fund disbursal
This reduces paperwork and improves customer convenience.
NBFC vs Bank: Key Differences
Parameter | NBFCs | Banks |
Regulatory Framework | NBFCs are regulated by the Reserve Bank of India (RBI) under the RBI Act, 1934. While they must comply with RBI guidelines, they generally cannot accept demand deposits such as savings or current account deposits. | Banks are regulated by the RBI under the Banking Regulation Act, 1949, and can accept demand deposits, offer savings and current accounts, and provide a broader range of banking services. |
Loan Approval Process | NBFCs often use technology-driven underwriting models, digital verification, and automated credit assessments, which can help streamline the loan evaluation process and reduce turnaround times. | Banks typically follow more structured approval procedures that may involve multiple verification stages, branch-level reviews, and detailed documentation checks. |
Accessibility and Borrower Reach | Many NBFC companies in India focus on serving a wider range of borrowers, including self-employed individuals, first-time borrowers, and customers in semi-urban and rural areas. Their flexible approach helps improve financial inclusion. | Banks generally have stricter lending norms and may place greater emphasis on established credit history, income stability, and traditional eligibility criteria. |
Personal Loan Experience | NBFCs often offer fully digital application journeys, minimal paperwork, online document submission, quick status tracking, and convenient customer service channels. Eligibility criteria may also be more flexible depending on the lender's policies. | Banks may provide competitive loan products, but often require more extensive documentation and verification processes. The customer journey may involve a combination of digital and branch-based interactions. |
Documentation Requirements | Typically require basic KYC documents, income proof, PAN card, and bank statements, with many processes completed digitally. | Usually require comprehensive documentation and may involve additional verification procedures depending on the applicant's profile. |
Eligibility Flexibility | May consider multiple factors beyond traditional credit parameters, making credit accessible to a broader borrower base. | Often follow stricter eligibility criteria based on credit score, income, employment history, and repayment capacity. |
Digital Experience | Many NBFCs prioritise digital-first lending, offering online applications, e-KYC, instant eligibility checks, and faster processing. | Digital services are widely available, but some loan processes may still require physical verification or branch visits, depending on the product and bank. |
Customer Support and Service | Frequently focus on personalised service and customer-centric lending solutions tailored to different borrower segments. | Offer extensive branch networks and multiple service channels, supported by established banking infrastructure. |
Benefits of Taking a Personal Loan from an NBFC
Convenient Application Process
Online applications allow borrowers to apply from anywhere without extensive branch visits.
Faster Loan Decisions
Digital underwriting and automated verification systems help speed up approval processes.
Flexible Eligibility Criteria
NBFCs often evaluate applicants using multiple factors, allowing broader access to credit.
Wider Access to Credit
One of the most important aspects of the role of NBFC is improving credit availability across different customer segments and geographies.
Things to Consider Before Choosing an NBFC Personal Loan
Interest Rates and Charges
Review all applicable costs, including:
- Interest rates
- Processing fees
- Foreclosure charges
- Prepayment charges
- Late payment penalties
Understanding the complete borrowing cost helps avoid surprises later.
Loan Repayment Terms
Evaluate:
- EMI affordability
- Loan tenure
- Repayment flexibility
- Prepayment options
Selecting appropriate repayment terms can improve financial planning.
Customer Service and Transparency
Choose a lender that provides:
- Clear communication
- Transparent disclosures
- Accessible support channels
- User-friendly digital services
Are NBFCs Safe and Regulated?
RBI Oversight and Compliance
Yes, NBFCs in India are regulated by the Reserve Bank of India. They must comply with various regulatory requirements, governance standards, and operational guidelines established by RBI.
Consumer Protection Measures
Regulations help ensure transparency in:
- Loan disclosures
- Interest rate communication
- Customer grievance mechanisms
- Fair lending practices
Borrower Responsibilities
Borrowers should:
- Read loan agreements carefully
- Understand fees and charges
- Make timely EMI payments
- Maintain healthy credit behaviour
How to Choose the Right NBFC for a Personal Loan
Compare Eligibility Requirements
Review eligibility criteria across lenders to identify the most suitable option based on your profile.
Review Fees and Charges
Do not focus solely on the interest rate. Compare the complete cost structure, including processing fees and other applicable charges.
Check Digital and Service Features
Evaluate:
- Online application journey
- Mobile app experience
- Customer support availability
- Loan tracking features
- Repayment convenience
A strong digital experience can significantly enhance borrower convenience.
Conclusion
Understanding what is NBFC, its role in the financial system, and how NBFC lending works can help borrowers make informed financial decisions. As a vital part of India's financial ecosystem, NBFCs provide accessible credit, streamlined loan processes, and flexible borrowing options to millions of customers. Before selecting a lender, compare eligibility criteria, loan terms, fees, and customer service standards to ensure the loan aligns with your financial goals.
For added convenience in managing loans and financial services, borrowers can also explore the PLANET App by L&T Finance for a seamless digital experience.
Also Read: What is the Difference between Bank and NBFC?
FAQs
What is the full form of NBFC?
NBFC full form is Non-Banking Financial Company.
How is an NBFC different from a bank?
The primary difference between NBFCs and banks is that banks can accept demand deposits, whereas NBFCs generally cannot. Both provide lending and financial services but operate under different regulatory frameworks.
Can NBFCs provide personal loans?
Yes. Personal loans are among the most common financial products offered by NBFCs.
Are NBFCs regulated by RBI?
Yes. NBFCs in India are regulated and supervised by the Reserve Bank of India under applicable regulations.
Is it safe to take a personal loan from an NBFC?
Borrowing from a registered and regulated NBFC is generally considered safe when borrowers understand the loan terms and meet repayment obligations.
What documents are required for an NBFC personal loan?
Commonly required documents include identity proof, address proof, PAN card, income proof, and other documents as specified by the lender.
Personal Loan Application via Planet App
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