Home-Car Loan: Why is a Personal Loan expensive, interest less on a car or home loan, understand the calculation

Everyone needs a loan at some point or the other. Sometimes people need a personal loan, sometimes a car loan, and many people even have to take a home loan to buy a house.

Everyone needs a loan at some point or the other. Sometimes people need a personal loan, sometimes a car loan, and many people even have to take a home loan to buy a house. You must have noticed that you get car and home loans at a low interest rate, but you have to pay more interest for personal loans. For personal loans, you have to pay interest ranging from 10 percent to 24 percent. On the other hand, car loans or home loans are available between 6-9 percent. Let us know why personal loans are expensive as compared to car-home loans.

Why are personal loans expensive?

A personal loan is expensive because it is given for a short period. In this way, the bank gets interest only for a short period. At the same time, often nothing is mortgaged against the personal loan, due to which its interest rate is kept high to deal with default. To save their profits, banks keep the rates of personal loans high, so that even if they incur losses from some loans, it can be compensated by the remaining loans.

Why is a home loan cheap?

A big reason for home loans being cheap is that the government itself promotes it. All banks and NBFCs are provided money by the National Housing Bank for home loans. Banks get this loan at a cheaper rate of about 2 percent, after which the banks give you the loan.

On the other hand, if the home loan is for a long period, then the bank gets interest for a long time. In such a situation, despite keeping the interest rate low, banks earn a lot of money in the long term. On the other hand, when you build a house by taking a loan, then consider your house as a guarantee of the loan. If you are unable to repay the loan, the bank will recover its money by selling your house.

Why is the government promoting it?

The government promotes home loans because they circulate a lot of money in the economy and also generate employment. When you buy or get a house built, you pay a good amount to the government through that registry, etc. On the other hand, with the construction of every house, there is a demand for all things like bricks, sand, gravel, iron rods, labor, etc. After the house is built, there is a demand for iron, wood, paint, furniture, etc. to decorate it. Many people get employment by building houses. This is the reason why the government promotes home loans and that is why there is a tax exemption so that more and more people take home loans.

Why is a car loan cheap?

Whenever you buy a car, you pay GST, road tax registration charges, etc. And when you fill petrol or diesel, the tax goes to the government from that too. Whenever you get a service done or any repair is done, any part or accessory is used, GST is levied on all these, which brings money to the government. That is, the more cars are sold, the more money will reach the government. In such a situation, the government also promotes car loans, due to which its interest rates are also kept low.