What is the Difference Between Loan and Borrow?
🆚 Go to Comparative Table 🆚The difference between "loan" and "borrow" lies in their meanings and usage:
- Loan: This term can be used as both a noun and a verb. As a noun, it refers to a sum of money or an item that is given to someone with the expectation that it will be returned, typically with interest. As a verb, it means to give something temporarily to someone else, with the expectation of getting it back. For example, "I will loan you my bike for the day".
- Borrow: This term is always used as a verb. It means to take and use something that belongs to someone else for a period of time, with the intention of returning it. For example, "Can I borrow some money from you?".
In summary, "loan" means to give something temporarily, while "borrow" means to take something temporarily with the intention of returning it. The person lending something owns it and is letting someone else use it, while the person borrowing something does not own it and will give it back when they are done using it.
Comparative Table: Loan vs Borrow
The difference between a loan and borrowing can be understood through the following table:
| Loan | Borrowing |
|---|---|
| A loan is a specific, one-time lump sum of money provided by a lender to a borrower for a particular purpose, such as purchasing a car or a home. | Borrowing refers to the process of obtaining something, such as money or property, from a lender with the understanding that it will be returned or repaid later. |
| Loans are non-revolving, meaning the borrower has access to the amount loaned only once. | Borrowing can be revolving, as in the case of a line of credit, where the borrower has continuous and repeated access to the line of credit while it is active. |
| Interest accrues on the full loan amount right away. | Interest accrues only when funds are accessed in the case of a line of credit. |
| Loans are typically used for specific purposes and are based on the borrower's specific need. | Borrowing can be used for any purpose. |
| Closing costs (if any) are usually higher for loans than for lines of credit. | Credit lines tend to have higher interest rates than loans. |
In summary, a loan is a specific, one-time lump sum of money provided by a lender for a particular purpose, while borrowing is the process of obtaining something from a lender with the understanding that it will be returned or repaid later. Loans are non-revolving, and interest accrues on the full amount right away, while borrowing can be revolving and interest accrues only when funds are accessed. Loans are typically used for specific purposes, while borrowing can be used for any purpose.
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