What is the difference between a grant and a loan?
Do you need a boost with your finances?
Whether it’s an unexpected bill or expenses piling up, we all need a helping hand every now and then. But when looking to increase your finances, there are a number of options to choose from. If you don’t know them, it can be hard to tell the difference.
Don’t worry, we’re here to help! Read on for our guide on the difference between a grant and a loan, to help you get started.
What is a loan?
You will be responsible for repaying the amount you borrowed, and there will also be interest to repay on top of that.
Lenders charge interest because they are taking a risk by lending you money. There’s a chance you won’t pay it back, so the interest is to compensate for any potential loss.
Usually the loans are secured or unsecured. A secured loan is where you deposit an asset as collateral for the loan. If you end up defaulting or if you cannot repay the loan, the lender will take possession of that asset.
Unsecured loans are the preferred option, but you won’t find them that often. You will not have to offer a guarantee. And if the borrower cannot repay the loan, then the lender is not entitled to take any assets.
The advantages of a loan over a grant
The first advantage of a loan over a grant is that it offers better opportunities. You can get loans from a variety of sources, from a casual deal with a friend to a formal bank loan. You also won’t have to compete with other people for a loan.
Another great advantage is that you get more financing options. Grants will generally be for a fixed amount of money, and there is a limit on the amount of money available per year. With loans, you can get the amount that your credit and repayment capacity allow.
What is a grant?
The biggest difference between grants and loans is repayment. While a loan requires you to repay the money you borrow, a grant does not. Grants are, at a basic level, a giveaway. You don’t need to pay it back.
Usually, you can get grants through:
- educational institutions
You can also get grants from organizations like Modest Needs. You can find out more here.
You will need to apply for grants and if you are eligible you will get the grant. But there is usually only a set amount of money available each year, so not everyone gets it.
Advantages of a grant over a loan
The biggest advantage of a grant over a loan is that grants are non-repayable. Once you get the money, it’s yours and there are no strings attached. No accumulated debt, no monthly repayments, nothing.
They are also risk free. If you are eligible for a grant, you are not at risk. You won’t have to worry about what will happen if you fail to repay. Your credit rating and your assets are safe.
Know the important difference between a grant and a loan
So this is it ! Now that you know the difference between a grant and a loan, you are on your way to finding the right option for you.
It is worth checking out what grants your local government offers and seeing if you are eligible to apply. And be sure to find a reputable lender if you are considering taking out a loan.
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