Government Banks vs. Private Banks for Home Loans

There is a big difference in taking loans from a public sector bank and from a private bank. As it is, the young generation prefers private banks like the older generations favor the public banks. Private banks make it easier for one to get a loan, and you also get an ease of approval. Private banks give you the benefit of an online application process as well.

When it comes to taking a home loan from either one of them, you need to heed factors like:

• Bank processing fees

• Paperwork, efficiency and turnaround time

• Interest rate fluctuation

• Prepayment charges

• Prepayment period

• Pre-payment penalty amount

• Charges for dealing in branch office

Let us now see who is better in these factors: private banks or public sector banks?

Bank processing fees

This is charged for the analysis, paperwork and for dong the loan processing paperwork.

Private bank- They either take a lump sum amount based on the loan amount or take a percentage of the total amount. Since most private sector banks depend on direct selling agents to get customers, these fees are kept as high as 1%.

Public sector banks: These do not typically use DSAs and thus their fees are kept low from 0.25% onwards. If you want to save money, this is the better option.

Paperwork, efficiency and turnaround time

Private bank: They have better management and a faster processing time. This is also due to their DSAs having a strict sales target each month. 

Public sector bank: Efficiency and turnaround time is seriously low in these banks mostly. You’ll have a slower processing time, but it shall be a steady pace.

Interest rates fluctuation

Private bank: Interest rates are increased as soon as the RBI decrees an increase in the REPO rate, but private banks don’t decrease interest rate with the same speed for current loan customers.

Public bank: Their interest rate change is much more transparent. Their policies are for all customers and so if the rate goes down, it applies to all existing customers immediately.

Prepayment charges

Private bank: In their case you have to read their terms and conditions of service very carefully since you need to pay them a fee if you prepay the loan. They do this to offset the loss of interest money. Prepayment charge is mostly 2% of the remaining loan amount during prepayment. 

Public sector banks: There are no prepayment charges here.

Prepayment period

Private bank: Typically, you can’t prepay before 180 days or 6 months. This is to the banks’ advantage since EMIs are placed in a way so as to give them maximum interest during the initial stages, and before you can make prepayments. 

Public sector banks: Government banks don’t have this clause.

Prepayment penalty amount

Private bank: Typically, you can’t prepay more than 25% of your outstanding loans in a year.

Public sector bank: There is no such clause here.

Charges for dealing in branch office

Private bank: If you deal in the branch office of a private bank, you’ll be charged for all the transactions you do here. Most banks will charge Rs. 100 plus tax after a certain number of visits.

Public sector bank: There are no such policies here.

The Conclusion

Both Private and Public sector banks have their benefits and downsides. It all depends what you are going for.