A home loan segment of the bank tops the highest business in the loan industry. Everyone goes for a home loan atleast once in his lifetime. Since it is the huge and lifetime investments of the borrower’s hard earn money, selecting the best bank for home loan becomes equally important. The borrower compares series of factors before applying for a home loan. There is both banks viz public sector as well as private sector set to provide home loan. Although both are governed by the guidelines of RBI, yet there are many differences in both approach for loan processing, fee structure, interest rates, and various other.
Home Loan Application In Private Banks.-
The popularity of private banks has increased since recent past due to aggressive sales mechanism, marketing techniques, employment of Direct Selling Agents & Connectors-as commission agents. The following points provide insight to the advantages of applying home loan with the private bank.
1) Private banks are step ahead in providing door to door personalized services to the borrower. Be it the direct bank employees or its outsourcing commission agents all advances doorstep services with no extra cost.
2) The appointment of selling agents gives an additional edge to banks with reference to paperwork, efficiency, and turn-around time i.e. the loan processing time frame. The loans are sanctioned and disbursed speedily.
3) There exist a scope for negotiating on the processing fees and rate of interest. The margins of the private banks are usually high in compared to the public sector banks. Banks agrees to negotiate only after studying the financial creditability and employment credentials of the borrower to be sure he poses less risk with respect to loan repayments.
4) Private banks excel in funding. They provide maximum funding on the property, at times even provides 100% on the agreement value of the property in resale home loans.
5) Private banks offer the facility of online application process for home loan and also provides ease in approval, thus making it suitable for the NRIs to approach for home loan.
6) Now a day’s majority of the private banks have their own banking app making it easier for the borrower to track his loan status, outstanding loan amount, generate interest certificate, raise partial disbursement request, etc.
However on the unfavourable front it is seen that private banks usually,
1) Charge high processing fees – may be for providing fast and prompt services and to pay the commission cut to their sales agents.
2) Immediately increases the interest rates on increase in REPO rate by RBI, but takes longer to decrease the same on decrease in REPO rates by RBI.
3) Offers no after sales services. The disbursement branch and banking branch of the private banks is different. So once the loan is disbursed the borrower has to turn to branch banking officials for any further correspondence. The outsourcing agents are of least help then after.
4) Do not allow prepayment of the loan without any additional charges. This is mainly because they looses their interest income on prepayments and therefore charge additional for loan closure.
5) Have a specified limit up to which the borrower can prepay the home loan in a single time.
6) Have a lock-in period of 6 months or 1 year before which the borrower cannot repay the home loan.
Home Loan Application In Public Bank
While the young blood chooses to go with private banks, the older generation looks forward to public sector banks for their home loan application. They have their own reasons to do so. Let’s find out the reasons why they believe in public banks.
1) Public sector banks are not that aggressive in entertaining DSAs and hence their processing fees generally low.
2) They have no specific limit conditions for home loan prepayments and thus the borrower can reduce his debt anytime with his extra money by making repayments. They also do not charge for pre-payment.
3) Some public banks provide principle sanction within 48 hours, only on the basis of the borrower’s income documents; the official sanction letter may take 7days.
4) They do not have lengthy process of personal discussions.
5) The interest rate policies are more explicit & transpicuous in public sector banks. With the decrease in the repo rates the benefit of decreased interest rates are uniformly transferred to both- existing as well as to the new borrower with no much delays.
Unfavourable front for the public sector banks: –
1) They provide less funding in comparison to private banks. Public banks fund only 80% on the agreement value.
2) They do not offer personalized door to door services. In most of the public banks the borrower has to personally visit the bank throughout the loan process.
3) They are less aggressive and target oriented and possesses slow moving approach which often causes delays.
It’s obvious that the borrower try to buy a product whose cost is as low as possible in both short and long term. So, it is important that he makes a wise decision considering the above facts. If he is looking to save money by choosing rates over the better customer services, well then approaching the public sector banks is definitely suitable. However if getting timely services and response without delays in loan process, is the priority of the borrower, private banks are highly favourable to opt for.