Difference Between Lending vs Borrowing
Two of the popular terms that are associated with loans and advances are lending vs borrowing. Lending is the term used while giving money to somebody to get it back, i.e. the original principal amount that was given and the interest on the same if it is a commercial loan after a certain time. Lending vs Borrowing is, in fact, 2 actions that will differ in sense and purpose. On the other hand, Borrowing will consist of taking money from another person or any financial institution like banks, NBFC with the intention of the same to return the amount of money (the principal and the interest) that was borrowed after a certain time.
Head to Head Comparison Between Lending vs Borrowing (Infographics)
Below is the top 8 difference between Lending vs Borrowing :
Key Differences between Lending vs Borrowing
Both Lending vs Borrowing are popular choices in the market; let us discuss some of the significant differences :
- The major difference between the terms lending and borrowing is that using the term lend would mean that one is giving up something and then using the term borrow would mean taking up something. However, both will describe a temporary arrangement.
- The purpose of the lending is to earn something premium while in the case of borrowing the purpose is to get the object in which the borrower is interested and is unable to afford the same.
- The lender usually will have the upper hand over the borrower.
- One can lend money that can be secured or unsecured while in case of borrowing, one cannot use that terms that are secured or unsecured borrowing.
- Lend is a verb while borrow is a noun.
- The purpose of the loan could include home loan, vehicle loan, student education loan, credit facility, etc. while in case of borrowing, there are no such terms.
The borrower intends to get that object or the money for its purpose and its obligation to repay the same without any default. The lender’s objective is to earn a premium over the object or money that he has in access. It’s his obligation to be fair with the borrower and do not take any undue advantage.
Lending vs Borrowing Comparison Table
Let’s look at the top 8 Comparisons between Lending vs Borrowing.
| The Basis of Comparison | Lending | Borrowing |
| Basic Definition | Funds provided by the financial institution or the bank or NBFC to an organization for a specific objective or purpose, which is to be repayable after a short period of time is known as the lending of the funds. | Funds will be called as borrowed when an organization or an entity gets funds from another entity which will be repayable after a certain period and will be carrying an interest rate. |
| Purpose | The purpose and the key objective of lending money are to gather interest income on the amount of money or say the principle lent to some person for a certain time. | The purpose or the objective of borrowing would be to use the money for specific purposes such as medical expenditure, home construction, hospital expenses, private functions, school education, higher education, and the like. |
| Key objects | Lending is not only for money, but it can also be done for other objects as well. | Borrowing to includes objects other than money as well. |
| Grammar | Lending is actually a verb. | Borrowing is a noun |
| Key meaning | Lending means one would be giving up something in exchange for something else. | Borrowing means one would be taking up and exchanging something else and thus paying something premium. |
| Motto | In lending, the intention is to earn something, and that one has access with himself. | In borrowing the intention is to get something that one does not possess and is ready to pay the same premium. |
| Lender vs borrower | The Lender is the one who sees himself as the key in the transaction as he believes to have the upper hand as there is more of interest from the borrower side. | The borrower seems to have the upper hand as he has a key interest in the object he has borrowed. |
| Other resemble words | For lending, different words will resemble a world of finance like going long in an asset (giving funds to the company and taking stock of that company). Others would include Reverse Repo where large institutions lend money for a day in exchange for collateral. | For borrowing the terms that will be used would be a short sale (where one borrows security that is not purchased by the investor and then, later on, returns the same, but he does this to get money and use it for a couple of days). Similarly, in the case of Repo, the institutions borrow money (sells the securities) for a day again in exchange for collateral. |
Conclusion
It is well understood that both terms Lending vs Borrowing is 2 different kinds of actions that serve different purposes. Lending is giving money to somebody to get it back the original amount which is the principal’s given and the principal’s interest if it is a commercial loan after a certain time. If a financial institution loans money in the commercial loan, then, the financial institution is entitled to charge a certain amount as interest on the principle that it lent. On the other hand, Borrowing consists of taking money from a financial institution or other people to return the amount of money borrowed after a certain time.
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