DEFINITION of 'Soft Loan'

A loan with no interest or a below-market rate of interest, or loans made by multinational development banks (such as the Asian Development fund), affiliates of the World Bank and government agencies to developing countries that would be unable to borrow at the market rate. Soft loans are loans that have lenient terms, such as extended grace periods in which only interest or service charges are due, and interest holidays. Soft loans typically offer longer amortization schedules (in some cases up to 50 years) and lower interest rates than conventional bank loans.


Also knows as "soft financing" or "concessional funding."

BREAKING DOWN 'Soft Loan'

For example, Ethiopia received a soft loan from the Chinese government, in September 2012. The Chinese government announced a grant and soft loan package totaling US$23 million to support Ethiopian development activities. The loan is part of China's plan to support Ethiopia and to promote the development of trade between Ethiopia and China. In another example, the Chinese government extended a $2 billion soft loan to Angola in March 2004. The loan was made in exchange for its commitment to provide a continuous supply of crude oil to China.

RELATED TERMS
  1. Call Loan

    A loan provided to a brokerage firm and used to finance margin ...
  2. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  3. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  4. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  5. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  6. Loan

    The act of giving money, property or other material goods to ...
Related Articles
  1. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  2. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  3. Personal Finance

    All About Government Loans

    There are many reasons to seek a government loan rather than one from a private lender. Government loans typically have low interest rates and offer fixed or subsidized options, as well as deferred ...
  4. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  5. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  6. Retirement

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  7. Personal Finance

    How Banks Set Interest Rates on Your Loans

    Many factors go into how banks set interest rates for loans. Use this information to negotiate the best possible rate when you're borrowing.
  8. Personal Finance

    Understanding Loans

    A loan is the act of giving money, property or other material goods to another party with the expectation of being repaid.
  9. Personal Finance

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
RELATED FAQS
  1. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  2. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  3. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  4. Federal student loan rates: who sets them, why they vary

    Federal student loan rates are set by Congress, not by banks. Learn more about who gets what rate, and how often they get ... Read Answer >>
  5. What are the differences between delinquency and default?

    Find out more about loan delinquency, loan default, and the difference between a loan borrower defaulting and being delinquent ... Read Answer >>
Hot Definitions
  1. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  2. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  3. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  4. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Four Percent Rule

    A rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. The four percent rule ...
Trading Center