A bond is a type of loan employed by big corporations or governments to boost capital by selling ious to the general public. The lender lends the money, while the borrower borrows the money, and there is a time limit on repaying the loan. The principle amount is usually paid in routine installments. When each payment is the same amount of money, it is called an annuity. The important characteristic of a loan is that the person who borrows must repay the principal amount to the lender and a certain amount of interest along with each installment.
The borrower must pay some proportion of the money to the lender than the principal amount is borrowed. This scenario is what is called incentive. Financial institutions are loan providers, and it is one of their central functions. There are also several different categories of loans. Bonds are a type of loan, which is called debt securities. When it comes to bonds, the public is the lender or creditor, and big businesses or the government is the borrower.
The issuer is expected to repay the holder the principal amount on the maturity of the bond. Until this time, the bond money is utilized by borrowers for long term investments. Governments use the bond money in financing it’s current disbursements. For corporations, bonds are valuable and highly regarded. Bonds are also tradeable. If the holder does not want to continue holding the bond until its end term, the bond can be traded off.
A bond is known to be something that can be traded. This means that if you would purchase a bond, there is a big possibility that you will find a place wherein you can trade the bond that you have purchased.
When you say loan, this is known to be a type of agreement that you may have with the bank where you have taken out a loan. There are also instances when you may take out loans from someone. Take note that loans cannot be traded, and you would need to pay them back up to a certain amount of time.
If you are unable to pay back your loan, the bank or the person from whom you have gotten the loan from may repossess an item that will be the same amount as your loan.
A bond is a type of loan which is used by big corporations or the government to raise capital by selling IOUs to the general public. Bonds are also called debt securities. In this case, the general public is the lender, and big corporations are the borrower.
Bond money is used by the borrower for long term investments. The issuer is obliged to pay the principal holder amount on the maturity of the bond.
While loan on the other hand is a type of debt in which the lenders lend money and a borrower borrows money. There are different types of loan which are secured loan, unsubsidized loan, mortgage loan, recourse loan, subsidized loan and non-recourse loan, etc. One drawback of a loan is that it can’t be traded.
Although bonds and loans are both considered as debts, however, there are some differences between the two. A bond is a type of debt between the bond issuer that is the borrower and the lender. Whenever governments or big organizations need to raise capital to finance certain projects, the source for capital by issuing bonds to people, which they will pay back at maturity with interest.
The principal is paid at maturity and interest when due. On the other hand, a loan refers to a sum of money borrowed by an individual or an organization or other legal entity from another group, individual or any other institution with the condition that both the principal and interest will be repaid at a later date based on the agreement between the two parties.
Loans are provided by financial institutions to individuals, organizations, and even governments. In the case of a bond, the bondholders are the creditors or lenders, while the bond issuers are the borrowers. Another difference is that bonds can be sold on the bond market, whereas this can't happen with loans.