Home Loan from Public Sector Banks vs Private Banks

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What are Public Sector Banks?

Public sector banks are financial institutions in which the Government of India holds a majority stake. More specifically, the Ministry of Finance is a significant shareholder in public sector banks.

As a part of public sector units or PSU, banks follow the financial guidelines laid by the Indian Government. Like most financial institutions, several public sector banks also offer home loans.

On that note, if you want a home loan from a banking institution, you can either get it from a private or a public sector bank. However, know that home loan interest rates of public sector banks vary from those in private sector banks.

Both these categories of banks have their own unique set of features as well as pros and cons that you should be aware of when availing a home loan. To that end, continue reading to understand the difference between private and public sector banks.

What are Private Sector Banks?

These are financial institutions wherein private individuals own the maximum stake in equities or shares. The growth of private sector banks has been immense since 1990.

On comparing private vs public banks, you can attribute the tremendous growth rate of private banks to using the latest technology. Implementing new monetary tools also helped these banks acquire a considerable customer base.

Private sector banks in India can be classified into two types:

Old private sector banks, which emerged before 1968
New private sector banks, which formed after the 1990s

Private bank home loan interest rates are comparatively higher than public sector banks. However, you may get other added benefits from private banks.

Always consider the pros and cons between public vs private banks when planning to avail a home loan.

Here are critical pointers for you to help you understand the comparison between public and private sector banks regarding home loans.

Why Choose a Public Sector Bank for a Home Loan?

Some of the reasons why you must consider taking a housing loan from a public sector bank are the following:

Processing fees are much lower compared to a private sector bank.
If the RBI decreases its repo rate, a public sector bank will immediately reduce the applicable interest rate. On the contrary, a private sector bank may not decrease your interest rate at all.

In case you want to prepay your loan ahead of time, a public sector bank allows you to do so at no additional charge. However, with a private sector bank, you may have to pay up to 2% of the amount you are prepaying.
You can prepay your loan anytime during your loan repayment tenure. Private sector banks, on the other hand, will only allow you to do the same after a minimum of six instalments.
If you want to prepay a home loan you have taken from a public sector bank, you can do so at any given time. On the other hand, a private sector bank may only allow you to prepay up to 25% of your outstanding housing loan balance in a given year.
A public sector bank generally has a diverse range of home loan schemes; each of them is meant for a specific income group or has a different use. You may not find as much variety if you choose to deal with a private sector bank.
The home loan eligibility criteria laid out by a public sector bank are generally more lenient than a private sector bank. Hence, you will always stand a better chance of getting a home loan from a public sector bank than a private one.

Why Choose a Private Sector Bank for a Home Loan?

Understanding a few essential features of public sector banks vs private sector banks can help you decide on the right lender for a home loan.

While you are familiar with the benefits of availing home loans from public banks, here are the top advantages of choosing a private sector bank for a home loan:

Private sector banks have a lower turnaround time when compared to public banks; hence, you can expect quick home loan approvals
With private banks adopting digitisation, you can easily manage your loan repayment using the bank’s mobile applications and websites. Though public sector banks try matching the speed of private banks, there is still a gap.
Availing a home loan from a private sector bank increases convenience as they provide doorstep services. This saves you the time and energy of visiting the branch to get a loan.
Private sector banks sanction higher loan amounts, and this allows them to better cater to you, the borrower.
The option of an online application process allows even an NRI to avail a home loan with ease.

Know the comparison between private banks and public banks better by learning about the public bank home loan interest rates and the private bank housing loan interest rates.

Home Loan Interest Rates of Public Banks

Here are the public bank house loan interest rates from some of the leading lending institutions.

Bank	Interest Rates	Repayment Tenure
Punjab National Bank	8.50% p.a. onwards	30 years
Union Bank	8.50% p.a. onwards	30 years
State Bank of India	9.25% p.a. onwards	30 years
Central Bank of India	8.80% p.a. onwards	30 years
Indian Overseas Bank	8.85% p.a. onwards	30 years
UCO Bank	9.15% p.a. onwards	30 years
Bank of Baroda	8.50% p.a. onwards	30 years

*Disclaimer: The interest rates can vary from one lender to the other and are subject to policy changes of the financial institution.

Home Loan Interest Rates of Private Banks

Here is a list of home loan interest rates from private banks.

Bank	Interest Rates	Repayment Tenure
ICICI Bank	9.00% p.a. onwards	30 years
YES Bank	9.15% p.a. onwards	35 years
Axis Bank	8.75% p.a. onwards	30 years
HDFC Bank	9.00% p.a. onwards	30 years
South Indian Bank	9.85% p.a. onwards	30 years
City Union Bank	10.25% p.a. onwards	15 years

*Disclaimer: The interest rates can vary from one lender to the other and are subject to policy changes of the financial institution.

Knowing the public and private bank home loan interest rates can help you make an informed choice before you apply for a home loan.

However, if you are still thinking, “what is the difference between private and public banks?”, check the critical differences in a tabulated form.

Private vs Public Banks for Home Loans

Before deciding whether to take a home loan from a public sector bank or a private one, you must know how one differs from the other. The key distinctions between the two are as follows:

Parameters	Public Sector Bank	Private Sector Bank
Processing Fees	Lower than their private sector counterparts, as public sector banks do not hire direct selling agents (DSAs).	A private sector bank generally charges a higher processing fee since it hires DSAs to get them leads/businesses.
Loan to Value (LTV) Ratio	You can acquire up to 90% of the property value as a housing loan from a public sector bank.	In some cases, you can acquire all of the money you will need to buy a property as a home loan from a private bank.
Processing/Turnaround time	Public sector banks will take more time than their counterparts in the private sector to process your home loan application and then disburse it.	Private sector banks will be quicker than their public sector counterparts in processing your loan documents and then crediting the amount to your bank.
Provision of doorstep delivery services	Public sector banks do not offer doorstep delivery services.	Private sector banks offer doorstep delivery services to their home loan customers.
Interest rates	Public sector banks will charge you a relatively lower interest rate on a housing loan than a private sector lender.	Since private sector banks are more about profitability than the public sector players and get a lot of intermediaries involved, the interest rate they charge you will be higher than that of a public bank.
Loan repayment penalty	Public sector banks will not charge you a single extra rupee as a penalty for repaying your loan before your loan repayment tenure ends.	A private sector bank will charge you up to 2% of the home loan amount you want to repay to compensate for the interest losses.

Understanding these crucial factors when comparing private vs public sector banks can aid in taking a loan on favourable terms and conditions.

Conclusion

When you plan to take a loan from a public sector bank, you can enjoy benefits such as lower interest rates and no processing fees.

Additionally, you will get to prepay your loan in its entirety whenever you want to if you have a public sector bank as your home loan lender.

But some positives are also attached to taking a home loan from a private sector bank. So, it ultimately comes down to what you want from a home loan lender and take a call based on that.

You can always apply for a home loan on Bajaj Markets and make use of benefits such as competitive interest rates, flexible loan repayment tenures and balance transfer facilities.

Disclaimer

The information and suggestions provided by BFDL hereinabove is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial advice or endorsement of any sort.

The information including interest rates or fees, loan amount and other charges with regard to any product, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks or NBFCs. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any application or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

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Amongst private banks vs public sector banks, which financial institution offers a better interest rate on home loans?

On comparing public vs private banking institutions, the home loan interest rate of private banks is higher than that of public banks.

How long does it take for a home loan to be sanctioned?

The processing time varies between public and private sector banks. While private banks have a higher turnaround time for loan approvals, getting a loan sanctioned in the public sector bank may take longer.