So you want to know the differences between grants vs loans. Even though these terms are often used simultaneously, there are a lot of differences between grant vs loan.
To start with, grants are nonrepayable, whereas you have to pay back loans along with interest rates after a specific period of time. The trend of knowing financial terms is the most alive in 2021.
Since you are reading this article, chances are you take a keen interest in the financial terms. If that is the case indeed, then this article is going to help you a lot as through this article, I will be telling you the key differences between a grant and a loan.
Grants are mostly offered by the Government to specific individuals and entities whereas loans are offered by financial institutions with the sole intention that it has to be repaid with interest.
So without wasting any further time, let us delve deeper into knowing the definition of grants and loans.
What Does The Term ‘Grant’ Mean?
As I mentioned before, grants are mainly offered by the Government. Grants can come in many forms, such as cash incentives, subsidies, duty drawbacks, etc. For using grants, there are certain terms and conditions that need to be fulfilled. When it comes to grants, they are offered by the Central Government, State Government, NGOs.
They are sanctioned because of a lot of purposes, for instance, for helping out the victims of natural calamities or for those who have the idea of opening a business to become independent. This is one of the most important things in knowing grant vs. loan.
The best part about grants is, they are nonrepayable. This means that you do not have to pay back the grant with any kind of interest rate. Now let us take a look at the definition of loans and how different it is from the grant.
What Does The Term ‘Loan’ Mean?
A loan is way different from a grant. A loan is basically an agreement when the lender lends some amount of money to the borrower with a certain rate of interest. When you avail of a loan, you are obligated to return it with an interest rate; otherwise, you might face legal consequences.
There are different forms of loans; each loan has its own sets of rules for repayment and interest rate. For instance, house loans have a lower rate of interest, whereas personal loans have a very rate of interest.
There are basically three ways in which a loan can be paid:
- EMI (Equated Monthly Installment)
- After the Expiration Term
Loans are further divided into two categories:
- Secured Loans – Loans that are backed by collateral are called secured loans
- Unsecured Loans – Loans that are not backed by any collateral are called unsecured loans. Unsecured loans usually have a very high-interest rate.
6 Key Differences Between Grant vs Loan
Down below I have listed some of the key differences between grant and loan.
While learning about the difference between grant vs loan, you should keep in mind the purpose of both terms. Grants are mainly offered by the Government to an entity or individual for some specific and special purpose.
In contrast, loans are considered to be money raised from financial institutions, mainly banks, in the form of debt.
2: Term of Repayment
Grants do not need to be refunded. It is basically free money. Since it is free money, grants are only given by Governments. On the other hand, loans need to be paid back in full along with a certain rate of interest.
One can pay back loans in Equated monthly installment or the full amount directly. You need to keep in point in mind while learning the differences between grant vs loan.
3: Interest Rate
There is no interest rate associated with grants, whereas loans carry a certain amount of interest rate. How much is the interest rate further depends on the kind of loan you are availing of.
As I mentioned before, grants are mainly given by Governments, central Government in particular, whereas loans are issued by financial institutions, banks, and money lenders.
You need to have a firm grip on knowing who the lender of both these things is in order to learn the key differences between grants vs loans.
5: Terms and Conditions
There are certain terms and conditions that need to be fulfilled in order to avail of a grant. Since the Government issues it, it is public money, so the Government ensures that grants are given to people who are in dire need of the fund.
While it comes to availing loans, there are already set rules and regulations that need to be fulfilled by the loan applicant to avail loan.
Grants can either be monetary or nonmonetary for instance; grants can be subsidies, discounts, etc. They do not need to be in exact monetary form.
On the other hand, loans are always monetary. While learning about grant vs. loan, it is very important for you to know this.
Now that we have gone through the differences between grant vs loan now let us take a brief look at all the similarities. Well, to be honest, there are not many similarities between grant vs loan.
A few of the similarities are both are long-term finances, you need to fulfill certain conditions, and the process of availing both these kinds of finance is a bit lengthy.
Final Thoughts On Grant vs Loan
There go, those were the differences between grant vs loan. I hope that this article has given you some insight into knowing about the differences between a loan and a grant. In my own personal opinion, grants are the best financial aid that you can possibly think of.
And the reason is pretty clear; you do not have to pay it back. If you have some further questions or feedback regarding loans and grants. Kindly leave them in the comment section down below. We will try our best to answer each one of your queries.