Difference Between Interest And Dividend

Difference Between Interest And Dividend

The main dissimilarities or difference between interest and dividend can be pointed out as follows:

1. Introduction

Interest: Fixed amount of money paid for the borrowed fund

Dividend: Distribution of earnings to the shareholders of the business

2. Relation With Profit

Interest: It is the charge against profit

Dividend: It is distribution of profit

3. Rate

Interest: Fixed rate of interest is applied

Dividend: No fixed rate of dividend

4. Tax Deductible

Interest: Yes

Dividend: No

5. Profit Required

Interest: It should be paid in case of loss also

Dividend: Profit is required to distribute dividend

6. Compulsory Or Optional

Interest: It is compulsory to pay interest

Dividend: It is optional

7. Paid To

Interest: It is paid to the creditors

Dividend: It is paid to the investors

8. Interim Payment

Interest: No

Dividend: Yes

 Also Read: 

Difference Between Interim Dividend And Final Dividend

9. Expense

Interest: It is considered as the expense of the firm

Dividend: It is not the expense of the firm

10. Form

Interest: Cash form only

Dividend: may be cash dividend or stock dividend

Interest Vs Dividend (Comparison Chart)

Basis For Difference	Interest	Dividend
Introduction	Money paid for the debt or borrowed fund	Sharing of earning to the shareholders
Refers To	Charge against profit	distribution of profit
Rate	Fixed	Not fixed
Tax Deduction	Yes	No
Profit Required	No	Yes
Compulsory	Yes	No
Paid To	Creditors	Investors
Interim Payment	No	Yes
Expense Of The Firm ?	Yes	No
Form	Cash	In the form of cash or stock

I hope this post is helpful to understand the difference between interest and dividend and to make comparison between them.