A bank requiring a higher interest rate on an automobile loan than on a home mortgage loan is demonstrating the core principle that says:

3rd is the best suitable answer, as automobile loan has lower security coverage because of depreciation, as compared to home loan.

Yes, Option 3 is the right answer.

3. "Risk requires compensation." ======================

3. Risk requires compensation.

Life of Home and Automobile defers. Thus value of underlying asset varies at different pace.

Rate of interest is summation of inflation adjusted cost plus risk premium.

Liquidity of secondary loan market is another but less significant factor affecting it

Thus, rate for automobile finance is higher than housing finance

3. Risks require Compensation.

 Since the home loans offer a greater security, the rate of interest happens to be lower. IN automobiles, the security is lower and administrative costs in case of default happen to be more. Hence, banks normally prescribe higher rate of Interest on Automobile loans than on HOme Loans.

I think Option (3) is the right answer as automobile loan is the more riskier when compared to the home mortgage loan. Thanks.

I'll go with the answer no (3): Risk requires compensation.

------------option 3--------------------------

Home loans secure due to its mortgaging than automobile loans. Thats why automobile loan having higher level of risk

i choose option 3 risks requires compensation