What Is the Difference Between a Loan and a Grant – Nowadays, most people need a loan to pay for their specific needs; such as for their kids’ education, for buying a new house or new car and et cetera. However, before you take a loan, you need to know what is loan and will it rather benefit you or harm you.
the is more like a debt that involved all of the tangible assets. Since it’s a debt, then there will be two parties that involved in this financial transaction which is the lender and the borrower.
What Is the Difference Between a Loan and a Grant
Initially, the borrower will accept some amount of money from the lender which will be returned together with an interest in a specific period of time. That’s the simple case of the loan which happens between two individuals. Loan can be given by a financial institution as well; for excample, bank, a car dealer and collateral company.
Based on the term, the loan is classified into the long term loan and a loan. Short term loan needs to be settled in three years. Payday loan which included in education, a loan is the most applied loan for emergency issues; such as car repairment, hospital bills or other unexpected events.
You can get this loan in no more than 48 hours but the downside of this loan is it offers a higher interest rate than long term loan. On the contrary, long term loan can be settled in an extended amount of time. Mostly, start-up companies will ask for this kind of loan to provide lots of capital for them.
Besides, long term interest rate differs based on the credit score and that’s one of the upside of having long term loan rather than the short term loan.
In Economics, besides learning about the term “loan”, we often heard of “grant”. However, what is a grant actually?
Grant is a given fund from one party to a recipient. It can be a charity funds given by a government department to nonprofit foundation or other organization. That’s the simple meaning of a grant or in other words, I called it a donation.
Differences between loan and grant
People tend to have a difficulty to differentiate loan and grant since both of them are generally a financial funding. In fact, both are differ based on the repayment. For the loan, you need to pay back what you owe together with the interest while for grant, it is non refundable which means it is simply an award or a gift.
Based on the borrowers, short-term loans are given by individuals, bank or other financial institution. For the loan, both the lender and the borrower should sign an agreement contract which makes the whole process becomes a formal agreement bound by law.
Grant is a different case. Goverment can provide grants for the society. Even one country can gift another country with a grant for various purposes in the long-term different field, mostly education and health.
Applying both loan and grant have their own advantage and disadvantage based on different point of view. Grant is more difficult to apply than loan however it still offers lower risk than loan itself.