Grant vs Loan
Grants and loans are very important resources of finance for students going in for higher studies because of high costs involved with them. These are also sources for funding governmental or private projects by financial institutions in a country. In the modern world, there are grants and soft loans offered by IMF and World Bank that help in development of infrastructure and for eradication of poverty in poor and developing countries. There are many who feel both grant and loan to be similar though there are many differences between these concepts that will be highlighted in this article.
Loan is an arrangement between two parties, called lender and borrower, where the lender offers money, and the borrower accepts the terms of repayment where he has to repay the entire amount along with interest in equated monthly installments. Almost all people are aware of the concept, which is also referred as debt taken by borrowers. While business loans and personal loans are normally ones that attract highest interest rates, home loans and student loans for studies are typically ones that carry the lowest interest rates.
We often hear the word grant as a form of financial relief or assistance in cases of natural disasters. Whenever there is either an outbreak, epidemic, or a natural disaster in a developing country, industrial nations rush forward to distribute grants to affected country. A grant is financial assistance that is not required to be repaid by the recipient and does not carry any interest. It is in effect free money meant for the help of someone or a company or a nation in need of financial assistance.
International financial institutions like IMF and World Bank give grants to developing countries and monitor the progress of the projects for which money is provided. In terms of financial aid of students, grants assume significance as they provide means for students from poor backgrounds to go for higher studies.
What is the difference between Grant and Loan?
• Both loans and grants are financial assistance, but loan amount has to be repaid by the borrower, whereas grant is free money that does not carry any interest and does not need to be repaid.
• Grants are available through a limited number of sources such as trust, foundations and international institutions like IMF and World Bank. They are also provided by rich nations to other nations that are developing. Charitable trusts offer grant to meritorious students having financial difficulties for their higher studies.
• Loans are available from many sources and require the recipient to repay the money in equated monthly installments in a specific duration.
• Grant is always more welcome than a loan for those who deserve financial aid.
• Loans carry differential interest rates and are labeled soft or hard loans.
• Personal and commercial loans carry higher rates of interest while home loans and educational loans are soft loans with low rates of interest.