What Is the Difference Between a Grant and a Loan?
Are you in need of a boost to your finances?
Whether it’s an unexpected bill or expenses are piling up, we all need a helping hand from time to time. But when you’re looking to boost your finances, there are a few options to choose from. If you’re not familiar with them it can be hard to tell the difference.
Don’t worry, we’re here to help! Read on for our guide to the difference between a grant and a loan, to get you started.
What is a Loan?
A loan is when you take out a set amount of money with the proviso that you must pay it back. Usually, you get loans from banks and other financial institutions.
You’ll be responsible for paying the amount you borrowed back, plus there’ll be interest to pay back on top too.
Lenders charge interest because they’re taking a risk by lending you the money. There’s a chance that you won’t pay it back, so the interest is to offset any potential loss.
Usually, loans come in secured or unsecured form. A secured loan is where you put down an asset as collateral for the loan. If you end up defaulting, or can’t pay the loan back, the lender will take possession of that asset.
Unsecured loans are the preferred option, but you won’t find them so often. You won’t have to offer any collateral. And if the borrower can’t repay the loan, then the loaner doesn’t have a right to take any assets.
The Benefits of a Loan vs Grant
The first benefit of a loan vs grant is it offers better opportunities. You can get loans from different sources from a casual agreement with a friend to an official bank loan. You also won’t have to compete against other people for a loan either.
Another big benefit is that you get more financing options. Grants will usually be for a set amount of money, and there’s a limit on how much money is available per year. With loans, you can get whatever amount your credit and repayment ability allows.
What is a Grant?
The biggest grant and loan difference is the repayment. While a loan requires you to pay the money you borrow back, a grant doesn’t. Grants are, at a basic level, a gift. You don’t need to pay it back.
Usually, you can get grants via:
- government
- trusts
- non-profits
- education institutions
You can also get grants from organizations like Modest Needs. You can find out more here.
You’ll need to apply for grants and if you’re eligible you’ll get the grant. But there’s usually only a set amount of money each year available, so not everyone gets it.
Benefits of a Grant vs Loan
The biggest benefit of a grant vs loan is that grants aren’t repayable. Once you get the money, it’s yours and there aren’t any strings. No piling debt, no monthly repayments, nothing.
They’re also risk-free. If you qualify for a grant, you’re not risking anything. You won’t have to worry about what would happen if you couldn’t meet repayments. Your credit-rating and assets are safe.
Know the Important Difference Between a Grant and a Loan
So, there you have it! Now you know the difference between a grant and a loan, you’re on your way to finding the right option for you.
It’s worth checking out what grants your local government offer, and see if you’re eligible to apply. And make sure you find a reputable lender if you’re going to take out a loan.
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