What is the difference between Bond and Loan? - ProProfs Discuss
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What is the difference between Bond and Loan?

Asked by T. Lopez, Last updated: Jun 15, 2020

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M. Krasinski

M. Krasinski, Content Writer, Columbus

Answered May 06, 2020

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.

 

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