Hard & soft loan
A hard loan is a loan with very specific parameters and adheres to market conditions such as the interest rate. A hard loan is not as "flexible" as a soft loan which does not have as many stipulations.
Terms for a hard loan:[1]
- The interest rate
- The currency the repayment is made in
- Maturity date (when the repayment is due)
- The repayment schedule
- The risk premium (determined by the credit rating of the debtor, the poorer the rating the higher the premium)
Soft Loan
A soft loan is a loan with relatively "loose" terms, it typically has an interest rate below the market rate (or sometime no interest at all), flexible maturities and is often used dy development banks.[2] Soft loans are usually given out by a government as a government can afford to be more flexible with their terms than a non-governmental institution that must earn a profit for their shareholders.[3]
A soft loan may be given to the government or development bank in a developing country by another nation or an organization such as the World bank. Because governments and organizations such as the World Bank do not need to make a profit they can afford to loan the money for a log time and with low interest. the debtor only needs to repay the principle amount.
See Also
References
- ↑ J.Black, N. Hashimzade, and G. Myles. (2009) "Hard Loan" [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-1420?rskey=hY9dYh&result=1, 2009 [Aug 20, 2016]
- ↑ Investopedia. "Soft Loan." [Online], Available: http://www.investopedia.com/terms/s/softloan.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186 [Aug 21, 2016].
- ↑ J. Law. "Soft Loan." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199664931.001.0001/acref-9780199664931-e-3543?rskey=RQmeg3&result=18, 2015 [Aug 21, 2016].