Updated July 31, 2023
Difference Between Lending vs Borrowing
Two popular terms 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 or NBFC to return the amount of money (the principal and the interest) 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 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 cannot afford the same.
- The lender usually has the upper hand over the borrower.
- One can lend money that can be secured or unsecured, while in the case of borrowing, one cannot use the terms that are secured or unsecured borrowing.
- Lend is a verb, while borrow is a noun.
- Lending serves various purposes, such as providing home loans, vehicle loans, student education loans, credit facilities, etc., whereas borrowing does not involve specific terms.
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, the bank, or NBFC to an organization for a specific objective or purpose, which is also to be repayable after a short period, are known as the lending of the funds. | Funds will be called borrowed when an organization or an entity gets funds from another entity that will be repayable after a certain period and will carry 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, etc. |
| Key objects | Lending is not only for money, but it can also be done for other objects. | Borrowing includes objects other than money as well. |
| Grammar | Lending is a verb. | Borrowing is a noun |
| Key meaning | Lending means one would be giving up something in exchange for something else. | Borrowing means taking up and exchanging something else and thus paying something premium. |
| Motto | In lending, one intends to earn something and has access to himself. | In borrowing, one intends to get something 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 interest from the borrower side. | The borrower seems to have the upper hand as he has a key interest in the borrowed object. |
| 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 also 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 (sell the securities) for a day again in exchange for collateral. |
Conclusion
However, It is well understood that both terms, Lending vs Borrowing, is 2 different kinds of actions that serve different purposes. Lending is giving money with the expectation of receiving the principal and interest back within a specific timeframe. Thus, If a financial institution loans money in a commercial loan, it can charge a certain amount as interest on the lent principle. On the other hand, Borrowing consists of taking money from a financial institution or other people to return the amount borrowed after a certain time.
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