Personal Loans: Are PSBs Better Than Private Lenders?

Updated on: 14 Dec 2021 // 32 min read // Personal Loans
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When it comes to availing a Personal Loan for your financial emergencies, you have a host of options to choose from various lenders. On one side are Public Sector Banks (PSBs), and on the other hand, are the Private Sector Lenders.

When one talks about PSBs, they are those banking institutions in which the government has a majority stake. Some of the notable names include State Bank of India, Punjab National Bank, Bank of Baroda, etc. Whereas popular private-sector lenders include banking majors such as HDFC, ICICI, Yes Bank, etc., and NBFCs like Bajaj Finserv, Fullerton India, and many more.

Public Sector Banks vs. Private Lenders

A confusion that confronts every individual seeking a Personal Loan is to choose between Public Sector Banks and Private Lenders. The basic structure of their Personal Loans is similar, but there are some intricate differences between the two.

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Here is a comparison between these two types of financial institutions:

S. No.ParameterPublic Sector BanksPrivate Lenders


Quantum of Loan

The public banks are more conservative and follow proper formulae to determine the amount of loan offering.

The private banks are more aggressive to business and do not hesitate from offering high-value loans to those who meet the guidelines.



The loan offers are bound to be transparent and compulsively reveal all information to the borrowers.

Many private lenders lack complete transparency and levy additional costs that all customers are not conversant with.



With public banks, you usually need to visit the branch for documentation and other formalities most of the time.

Private banks score on the services and usually offer doorstep services for document collection and so on.


Interest rate

Take some time to pass-on the benefit to the customers

Are more pro-active and transfer the benefits to the customers quickly


Processing Fee

Low processing fee makes the loan more affordable

Higher processing fee charged from the customers


Processing time

Take some days to process the application and require a lot of documents

Are very technology-friendly and process the applications in a quick time


Mode of Application

Usually, prefer in-branch banking wherein physical forms must be filled.

Accept online applications as well with scanned copies of the documents


Prepayment charges

Levy minimal or no prepayment charges at all

Do not encourage pre-payment and levy substantial pre-payment charges


Customer Care

Not all PSBs offer online support. Getting accurate and up to date information can be a challenge over the telephone

Phone banking, app banking, and chatbots offer round the clock customer support


Eligibility Criteria

Are very particular about the eligibility criteria

Are quite flexible with the eligibility criteria

  • Quantum of Loan: When it comes to the maximum amount available during the financial crisis, private lenders score over public sector banks. Public sector banks are more conservative as compared to private sector banks and therefore offer lesser amounts as unsecured Personal Loans. For instance, the maximum amount available as Bank of Baroda Personal Loan is Rs. 10 lakhs for urban areas and Rs 5 lakhs for rural areas. In comparison, Bajaj Finserv offers Personal Loans up to Rs. 25 lakhs for its customers.
  • Transparency: In terms of transparency, public sector banks perform much better as compared to private lenders. Every information pertaining to terms and conditions, interest rates, and other essential factors are conveyed to the customers beforehand. In contrast, private-sector lenders keep some ambiguity in their agreements and can also include some hidden charges. You can use online tools like Bank of Baroda Personal Loan EMI Calculator to get clarity regarding the Personal Loan offer.
  • Convenience: Availing a Personal Loan from a private lender is definitely more convenient as compared to a public sector bank. Most private lenders have an extensive network offering doorstep services for document collection. In contrast, public sector banks require you to visit the branch for completion of every task of the Loan.
  • Interest rates: As there are no channel partners present in the case of Public Sector Banks, their expenses are lower, and therefore, they are able to offer lower interest rates as compared to Private Sector Banks. But in terms of passing on the benefits of interest rate changes to the customers, private lenders are more pro-active.
  • Processing fee: The processing fee in case of Public Sector Banks is much lower as compared to private lenders. There are not many channel partners in case of the PSBs, thereby reducing their overheads and allowing them to offer lower processing charges. But private lenders need to take care of the channel partners and thus levy a higher processing fee.
  • Processing Time: Private lenders are driven to disburse more loans in a given month as they have their monthly targets. Therefore they process the loans in a quick time as compared to public sector banks who can take a week or more to process the Personal Loan application.
  • Mode of application: Public Sector Banks in India have lagged behind when it comes to the integration of technology in their operations. You will need to visit the branch and fill out lengthy forms to submit your application. But in the case of private lenders, online applications can be submitted through a mobile app as well as the website.
  • Prepayment charges: Public sector banks encourage customers to pre-pay their loans by charging lower or even waiving off the pre-payment charges. Private lenders fare poorly on this parameter and levy up to 6% pre-payment charges. Moreover, private lenders do not allow any pre-payment during the first 12 months. Consequently, by the time the customer is allowed to make the prepayment, he/she has already paid a large part on the interest cost.
  • Customer support: With multiple channels such as chatbots, mobile app, and customer care helpline, private lenders offer round the clock customer support to the customers. Public sector banks lag behind on this parameter, and it is virtually impossible to get any information on weekends or non-working hours.
  • Eligibility Criteria: Drive-by their pursuit for targets, private lenders offer flexible eligibility criteria for the customers, improving the chances for the loan application to be approved. Though in the case of PSBs, rules must be followed thoroughly, and any discrepancy will lead to the rejection of the application.

Now the decision as to which of the two options is more suitable for you depends entirely on your preferences. If you are looking for convenience and comfort, then private lenders should be your first choice. But if you are looking for transparency and reduction in the cost of borrowing, then you must go with a public sector bank.

Also Read: These are the Top 10 Largest Banks in India

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