Difference Between Interest and Dividend

Difference Between Interest and Dividend

Interest

  • Interest is the amount paid by the borrower it may be an entity, a company or an individual for the borrowed funds from the lender. 
  • Interest is a return on investment to the lender who charges it from a customer on the money lent. 
  • Interest paid by the company or an entity is an expense reduces the income of the company. 
  • Interest is payable at the regular time interval like annually, semi-annually or a quarterly to the moneylender at a specific time. 
  • Interest is calculated on the principal amount and the rate at which interest is calculated is known as an interest rate. 
  • Interest can be charged on the loan amount, bonds, debentures, securities etc. 

Types of interest

  • Simple interest 
  • Compound interest 

Read More About Types of Interest rates

Dividend

  • The dividend is generally paid by the company whether it is a private company, public company or a cooperative to the company's shareholders who are also owners of the company but has a small part of ownership. 
  • A dividend is an amount paid from the profit which left after paying all expenses and keeping all reserves and then distributed among the shareholders. 
  • A dividend is unanimously decided by the Board of Directors in the Board meeting. 
  • Shareholders will get a dividend in proportion to the money invested in the share of the company only if profit occurs. 
  • A share can be purchased from the initial public offer or from an open market. 
  • A dividend is generally paid annually but if board members want they will give semi-annually and quarterly also. 
  • A dividend is not always in cash form if the Board member wants they will give a share to the shareholders instead of a cash dividend 

Read More About Mutual Funds

Difference between Interest and Dividend

Meaning

  • Interest is the amount paid by the borrower it may be an entity, a company or an individual for the borrowed funds from the lender. 
  • A dividend is a return which paid by the company to its investors for the money invested by them. 

Form

  • Interest is a charged against the profit. 
  • A dividend is a part of the profit it means it an appropriation of the profit. 

Compulsory

  • Interest is compulsory whether it a company or an individual an interest must be paid to the lender. 
  • A dividend is the paid only if profit occurs so it is not mandatory. 

To whom paid

  • Interest is paid to the lender or creditors by the borrower. 
  • A dividend is paid to the shareholders by the company 

Fixed or static

  • Interest is a fixed amount paid to the borrower at a predetermined rate. 
  • A dividend is not fixed and it varies from time to time depending upon the profit occur. 

Comes under which head

  • Interest is an expense to the company. 
  • A dividend is not an expense to the company. 



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