What is the primary difference between a loan and a grant?

The primary difference between a loan and a grant lies in the repayment terms associated with each. A loan is a sum of money borrowed that must be repaid over time, typically with interest, which increases the total cost of borrowing. This means that not only does the borrower need to return the original amount borrowed, but they must also pay an additional amount as interest.

On the other hand, a grant is essentially a financial award that does not require repayment. Grants are often awarded based on specific criteria, such as financial need or project goals, and represent funds given to support a particular purpose without the obligation to return the money.

Understanding this distinction is crucial when considering financing options, as it influences the total amount one will ultimately pay back and can affect budgeting and financial planning decisions.