How Loan Purpose Affects Pricing
The purpose of your loan guides lenders on risk, collateral, and regulatory treatment. Secured loans like home loans generally carry lower interest rates because the property serves as collateral, reducing lender risk. Unsecured personal loans rely primarily on your credit profile and income stability, which can result in higher rates but faster approvals and fewer documentation requirements. Auto loans often sit between these two extremes, with the vehicle acting as collateral. Education loans may offer flexible moratoriums during study periods. Business loans vary widely depending on financial statements, cash flows, and collateral availability.
When you select a purpose in this step, the remaining flow stays the same, but the guidance you read will better match the typical product features and risk characteristics in your segment. For instance, home loans tend to allow longer tenures, which lowers EMIs but increases total interest; personal loans offer shorter tenures that repay faster but can have higher monthly obligations. Consider your cash flow comfort, long-term goals, and the potential for prepayments when choosing the product type. If a collateral-backed option is available and suits your situation, it may reduce your overall cost of borrowing.
Always review fees beyond interest: processing charges, insurance bundling, documentation fees, legal/valuation costs (common in mortgages), and prepayment penalties. A transparent comparison that includes these items—alongside the EMI—gives the most accurate picture of affordability. Proceed to the next step to enter loan amount, interest rate, and tenure; you’ll immediately see how these variables determine your EMI and interest outgo.