Loans and bonds are popular methods of financing purchases, but it's important to understand their key differences. Both loans and bonds involve borrowing money, but the lenders and repayment terms differ. Here are the major distinctions:

Loans

Loans are typically provided by banks or financial institutions. Borrowers agree to repay the loan with interest over a set period. Loans are often secured by assets like homes or cars, allowing lenders to take possession of these assets if the borrower fails to repay.

Bonds

Bonds are issued by organizations such as companies or governments. The bond issuer pays interest to bondholders over a designated period and repays the principal at maturity. Bonds do not require collateral; instead, they rely on the issuer's ability to make payments.

Commonly Taken-Out Bonds

• Trustee Bond: A trustee bond issued by corporate trustees, guaranteeing that they will fulfill their duties when administering an estate or trust.

• Executor Bond: An executor bond issued by an individual (the executor) to ensure they fulfill their obligations when administering an estate or trust, protecting beneficiaries in case of failure.

Investors expect three main things from bonds:

Security: The safety of investing in a bond. For example, trustee bonds offer more security than government bonds because they have collateral.

Liquidity: How easily investors can buy and sell bonds. Corporate bonds tend to be more liquid due to high market demand.

Yield: The amount of money investors can earn from a bond. Corporate bonds typically offer higher yields due to their riskier nature.

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