Disclaimer: This article is for general educational purposes only and is not intended to imply that Citi offers the product or product features discussed herein. Citi may have different product offerings and/or eligibility criteria than those mentioned in this article.
Key insights:
- Bonds and loans both provide access to funding, but bonds are typically issued by governments or corporations to multiple investors, while loans are provided by a lender to a single borrower
- Bonds are commonly used for large-scale funding needs like infrastructure or business expansion, whereas loans are more often used for personal, home or business financing
Bonds are a type of security that allows businesses or government agencies raise money from investors, who may then collect interest until the bond is repaid. Meanwhile, loans provide a specific sum upfront, in exchange for the borrower making regular repayments that include interest.
Let’s explore what bonds and loans are, their differences
What is a bond?
A bond is a loan to an issuer such as the federal government, a municipality, or a corporation. By purchasing bonds, investors provide a source of temporary funding to the bond issuer, with the expectation that the money will be repaid after a certain period of time, called the “maturity date.” While the bond is maturing, the bond issuer pays the investor interest on a set schedule. Bond interest is also called a “coupon,” and it may be fixed-rate or floating-rate, which means it changes with the market.
If the investor holds the bond until maturity, they should receive the full face value of the bond back. The investor may choose to sell their bond before it matures, but doing so doesn’t guarantee return of the face value.
Bonds can be issued by several sources, such as:
- Corporations: Businesses may issue bonds for a wide variety of purposes, from buying new equipment and investing in research to buying back their own stock and refinancing debt
- Municipalities: Municipal bonds (or “munis”) are offered by state and local governments to fund their existing obligations as well as projects, like building schools or highways
- U.S. Treasury: In the United States, the Treasury issues bonds backed by the federal government
While no investment can guarantee a return, investing in bonds may, but not always, provide a more stable investment options. Investors often use bonds to balance their portfolios and provide a steady source of income over time.
Pros and cons of bonds
Like all investments, it’s important to understand the benefits and considerations before purchasing a bond.
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What is a loan?
A loan is a structured agreement between a lender and a borrower. In exchange for receiving money, the borrower agrees to repay that amount (called the principal), plus interest, by a set amount of time in installments. The time that the borrower has to repay that debt is called the loan term.
Some common examples of loans include:
- Personal loans: These loans may be used for a wide variety of purposes. Personal loan APRs can range widely depending on the lender. These loans may offer short- to medium-term repayment terms.
- Mortgages: Home loans that use the purchased property as collateral and often involve a down payment
- Business loans: Business owners may use this type of loan to get financing for their business, ranging from startup loans to equipment loans and more
You may get a loan from several sources, including banks, credit unions and online lenders. Some loans may require collateral. That's an asset that secures the loan in case the borrower can’t pay.
Common loan terms range from 1 to 30 years, depending on the lender and type of loan.
Pros and cons of loans
While loans can provide quick access to the funds you need, there are also a few drawbacks to consider.
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Bond vs. loan: Key differences
There are many differences between bonds and loans, particularly depending on whether you are looking at them from a borrower or an investor perspective. Those range from who issues them, how they're repaid, and their purposes.
Bonds and loans may each have their place in financial plans. Once you understand the differences and make your choice, you can put your plan into action.
Explore personal loans with Citi
If you’re considering a personal loan for your funding needs, Citi offers personal loans of up to $30,000 to both existing Citi customers and new to Citi customers, and lets you check your rate with no impact on your credit score. Existing customers may also be eligible for up to $50,000, as well as a 0.5% discount when you enroll in automatic payments.1
Think you could benefit from a Citi Personal Loan? Apply online today to get started.
1Eligibility for a loan amount of up to $50,000 is exclusively limited to customers holding Citi credit cards or eligible Citi checking and savings accounts. Loan approval is subject to Citi's standard credit underwriting criteria and other terms and conditions.
This article is for general educational purposes. It is not intended to provide financial. It also is not intended to describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
