Grant vs. Loan: What's the Difference?
Edited by Aimie Carlson || By Harlon Moss || Published on November 18, 2023
A grant is non-repayable funds provided typically for a specific purpose, while a loan is borrowed money that must be repaid with interest.
Key Differences
A grant is essentially a financial gift given for a specific purpose, often by governments, institutions, or nonprofits. The recipient does not need to repay a grant, making it especially valuable for those seeking funding without financial strings attached.
In contrast, a loan involves borrowing money from a lender, such as a bank or individual. This borrowed money must be repaid over a predetermined period, usually with added interest. Loans can serve various purposes, from personal needs, like buying a home, to business operations.
The fundamental distinction between a grant and a loan lies in the repayment. While the funds from a grant are given without the expectation of repayment, loans are essentially contractual agreements that require the borrower to pay back the principal amount plus any accrued interest.
Furthermore, grants are typically awarded based on merit, need, or alignment with a specific mission. They often require an application process where the recipient must demonstrate how the funds will be used. On the other hand, loans are mainly based on the borrower's creditworthiness and ability to repay.
In essence, while both grants and loans provide financial assistance, the former is a form of benevolence or support, and the latter is a business transaction that comes with the obligation of repayment.
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Comparison Chart
Nature
Financial gift
Borrowed money
Repayment
Not required
Must be repaid with interest
Basis of Acquisition
Merit, need, or mission alignment
Creditworthiness and repayment ability
Source
Governments, institutions, nonprofits
Banks, credit unions, individuals
Purpose
Specific projects or causes
Varied, personal to business needs
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Grant and Loan Definitions
Grant
Typically requires a thorough application process.
She spent weeks perfecting her grant proposal.
Loan
Loan is borrowed money to be repaid.
He took out a loan to buy a new car.
Grant
Often awarded based on merit or need.
He was given a grant due to his academic excellence.
Loan
Requires repayment with interest.
She's paying off her loan in monthly installments.
Grant
Given for a specific purpose or cause.
The city issued a grant for urban development.
Loan
Lenders earn through the interest charged.
The bank profits from the interest on the loan.
Grant
Grant is a non-repayable financial gift.
She received a grant for her research project.
Loan
Can serve a variety of purposes.
Businesses often take loans for expansion.
Grant
Can be provided by various institutions.
The nonprofit offers a grant for artists.
Loan
Granted based on creditworthiness.
Due to his high credit score, he was approved for the loan.
Grant
To allow or consent to the fulfillment of (something requested)
Grant permission to speak frankly.
Grant a request.
Loan
An instance of lending
A bank that makes loans to small businesses.
FAQs
Who typically provides grants?
Governments, nonprofits, and institutions often provide grants.
Do all grants require an application?
While most grants require an application, the process can vary based on the provider.
Is there a limit on grant funds?
Grants often have set amounts, depending on the provider and purpose.
Is interest always charged on loans?
Typically, yes. The interest compensates the lender for the risk of lending money.
Can anyone apply for a loan?
While many can apply, approval usually depends on creditworthiness and repayment ability.
What happens if a loan isn't repaid?
Defaulting can lead to penalties, higher interest, and damage to one's credit score.
Why is credit score important for loans?
It indicates the borrower's creditworthiness and likelihood of repayment.
Do loans have a set duration?
Yes, loans usually have a specified term or duration for repayment.
Are there different types of grants?
Yes, from research and educational to project-based and individual grants.
What's the primary difference between a grant and a loan?
A grant is non-repayable, while a loan must be repaid with interest.
What is a secured loan?
A loan backed by collateral, like property or assets, which the lender can claim if not repaid.
Can a grant be renewed?
Some grants are renewable, but terms vary by provider.
Are there penalties for early loan repayment?
Some loans have prepayment penalties; always check the loan agreement.
What is a loan's principal amount?
The original sum of money borrowed, not including interest.
Can grants be used for any purpose?
No, grants are typically designated for specific purposes outlined by the provider.
Can an individual provide a grant?
While rare, individuals can offer grants, often through foundations or trusts.
Are grants taxable?
Depending on the nature and use, grants may be taxable. Always consult with a tax professional.
What's an unsecured loan?
A loan not backed by collateral, usually with higher interest due to increased risk.
What's a grant proposal?
A detailed application explaining how grant funds will be used.
Can grants be combined with other funding?
Yes, recipients often supplement grants with other funds or grants.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
