What are loans and bond?
LOANS
loans are a credit system that involves two parties, i.e. the lender and the borrower,
its a term refered to when an individual or cooperation lends another individual a certain amount
of money for a stipulated period of time, for a certain amount of interest which would be payed according to a
certain spelled out mode or system of payment, payment could be made in cash or installments.
BONDS
bonds are security fixed documents that represents a loan giving to high cooperation
and other governmental organizations or companies, they are often bought by individual or investors as securities
and expects to be paid back the exact amount the bought it at first with a little interest depending on the rate paid
by the investor or buyer
they are used for fund raising by the government or bigger co operations, these cooperations sells out these documents
at a certain price, to raise funds, hereby giving investors or persons with huge finance the chance to invest
in the running of the business and the buyers preserve these documents for a period of ten to thirty years
depending, the interest rates are called coupon which is paid variably as security upon the maturity of the bond agreement
unlike loans bonds are flexible and affords the seller liberty to operate as they wish without the beign infringed upon
by the lender
the bond holder can decide to dell his bonds even before the date of the bonds maturity in the market place to another buyer
whenever he wants
What are the benefit of using a loan over a bond?
BONDS
for a starter loans have a certain limit that your profile cannot exeed, like credit scores, loan history, hereby protecting
you from borrowing a huge amount of money, plus loan provides you with a flexible mode of payment and often doesn't last long
you would not need to wait for 10 to thirty years to pay a huge amount of money you are not sure to afford at that period of time
so you you pay according to your strenght instalmentaly, either monthly or weekly
and there are different kinds of loans you can go for ranging from payday loan, business funding loan, mortgage loans and so on
How does the interest rate affect the decision?
well bond has a lower interest rate compared to other investments so this may affect your decision as a buyer and the interest rate
otherwise known as coupons will be paid annually which is not more than 5% of the issuer price so if you are interested in the interest, then
It might kill your interest in buying bonds
how ever as the borrower loans have a higher interest rate because it is most times considered insecure and they are variable rates that are linked with the base rate
so if you are considering borrowing a huge amount of money with lower rate of interest then it will affect your decision of going for a loan you might want to consider
bond
what are the risk of associated with using a loan?
loans most times places under the watch of the lender and jerby limits your freedom of spending, as much as you should
loans have a higher interest rate, which can affect your gain if you are a business man
you will incur more interest if you default in payments unlike bonds that rises and falls according to inflation
What are the risk associated with using bonds?
bonds have a lower rate returns unlike other forms of investments like loans
when you decide to sell your bonds in the secondary market before the matured time you stand the risk of selling them at a huge lost
the interest rate is constantly affected by the constant change in interest rates you could loose much money to this inflation
the bond issuer price can rise or fall at anytime because of inflation
CONCLUSION
whether to go for a loan or bond is determined by how much you need and your plans so put to consideration these things and choose wisely , the system that best suits your income and cooperate goals
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