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Difference Between Loan and Grant

Published on Saturday, November 18, 2017
Difference Between Loan and Grant

Loan

  • A loan is a sum of money which is borrowed from the financial institution like a bank by a firm or an individual. 
  • A loan is one kind of agreement in which a money is taken from the lender that is payable after some time at a future date. 
  • So, it is one kind of obligation to pay back in time with the predetermined rate of interest. 
  • A loan can be repaid in equated monthly instalments which cover the whole lump sum amount. 
  • If the borrower takes a loan for any specific purpose then he must qualify certain qualification. 

Types of loan


Secured loan

  • A secured loan is given to the borrower by putting pledges like some asset as collateral like property, car etc. 
  • A mortgage loan is a type of secured loan used by a client. 
  • If in case the client fails to pay the loan amount to the lender, a lender has legal right to possess the collateral security and recover the money. 

Unsecured loan

  • The unsecured loan is the loan which is not secured against any of property of the borrower. 
  • An unsecured loan is available from the financial institutions like banks, NBFCs, and other private institutions. 
  • In the unsecured loan, there is more risk associated with it that means a customer may not pay back an amount. 

Grant

  • A grant is also known as a "subsidies". 
  • Grant is a financial assistance given by the government in monetary or non- monetary form. 
  • A grant is a sum of money given by the government or by an entity to a person. 
  • Gran is either given by the central government, state government or by a foundation to an individual, entity etc. 
  • A grant is funded for the authorized purpose and it is not non-repayable. 
  • A grant does not bear any kind of interest. 
  • A grant requires a lot of formalities to pass from the competent authority; an application must be made to the competent authority. 
  • A grant is an economic aid which is given to benefit the public. 

Advantages of loan


1) More opportunities

A loan is offered by many lenders like banks, private lenders or by individuals. So, there is a huge market for getting a loan and fulfil the financial need.

2) More finance

In a loan, a borrower gets more finance based on his credit history, financial statement and ability to replay.

Advantages of grant:


1) No repayment of amount

In a grant, there is no repayment of an amount which is given as a grant by the entity to a person.

2) No interest:

A grant does not bear an interest from the beneficiary, it is interest-free money given as assistance.

3) No risk to the borrower

A borrower has no kind fear or a risk because a grant is not repayable. So, a borrower has no need to put anything as collateral.

Difference between loan and grant


Meaning

  • A loan is one kind of agreement in which a money is taken from the lender that is payable after some time at a future date. 
  • Grant is a financial assistance given by the government in monetary or non- monetary form. 

Repayment of an amount:

  • In a loan, there is repayment of an amount after some time which is predetermined. 
  • There is no requirement to pay back a sum of money. 

Interest

  • A loan has interest and the rate of interest differs from loan to loan. 
  • A grant is free from the interest. 

Sources

  • A loan has many sources like it can be taken from the bank, an individual, a firm or any entity. 
  • A grant has limited sources like it can be given the government or by the foundation. 

Form of assistance

  • A loan is in the form of cash only. 
  • A grant may be in the form of cash or any other kind. 

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Ramandeep Singh, your guide to banking and insurance exams. With 14 years of experience and 5000+ selections, Ramandeep understands the path to success, having transitioned himself from Dena Bank and SBI. He's passionate about helping you achieve your banking and insurance dreams.

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