What’s the Difference Between Grants and Personal Loans?
When searching for financing, there are often more resources available than most people realize. While a traditional bank loan can be an easy way to get the cash you need, there may be some other options to consider. Probably the most favorable type of financing that can be obtained is a government or private grant. This is money that is typically provided tax-free, interest-free and with no repayment terms, making it an incredible deal for the qualified applicant.
Benefits of a Loan…
If you have good credit, a traditional lender can quickly provide you with the money you need. Regardless if you want to buy a car, a new home, go to school, or just need a personal loan. Even if you need credit, your bank is a good place to start. In the case of buying a home, you’ll most likely need at least 20% cash to put towards the home in order to have a vested interest in the purchase. Since you then will actually owe part of the home, rather than being completely financed by the bank, you are more likely to make payments on time, properly maintain your home, and do what you can to increase the value of your house.
But a bank loan is not just handed out to anyone. In order to walk into a bank, sit down and ask for $200,000 for the purchase of a new home, they’re going to want to see some credentials. At the same time, the loan you get approved for from one lender may be different than what another lender offers you. That means there is some negotiating involved in order to get the best rate and terms. The better terms generally come with having better credit and more collateral to put towards the loan.
Benefits of a Grant…
The biggest difference between a grant and a loan are the terms. Typically when you are awarded a grant, the money is yours to keep and never has to be paid back. You will likely not have to pay taxes and the grant does not incur interest. The money is essentially yours to keep.
That’s not to say that just anyone can get approved for a grant, but often times the grant funds are provided regardless of credit or income. Obtaining these funds involves less about your financial background and more about matching your background and interests to the qualifications of the grant.
Consider This…
When a grant is awarded to you, there are specific terms that must be followed in order to ensure that you don’t have to repay the money. Grants are provided for specific purposes, and it is your responsibility to spend the money to support the grant agenda. For instance, if you apply for and receive a grant to help you pay for school, it would most likely not be acceptable to use the money for going on a vacation. Likewise, if you are awarded down payment grant money to go towards the purchase of a new home, it would not be advisable to use the money for purchasing a new car.
Another big difference between a grant and a loan is the fund availability. Banks will always lend money to qualified applicants, but grant programs come and go quickly. Often times grants are funded by tax dollars and have a limited budget. Once the money is given away and the budget is depleted, it may not be funded again for another year.
While obtaining a grant many not be able to fully finance your goals, they are a good place to start. Because of the attractive and lose terms that are associated with grant funds, they are a great way to help reduce your personal financial responsibility. Although grant funds are not typically advertised, accessing an up-to-date grant directory can help you find the funds that are currently available and help you through the application process.