The terms Hard Money and Soft Money have different meanings in different fields. This leads to confusion among the common people. Some simply assume that hard money is cash on hand and soft money is cash on paper. However, this is a wrong concept. To clear the confusion, a piece of proper knowledge is required. A brief study will help us to properly distinguish between the two terms.
Hard Money vs Soft Money
The main difference between Hard Money and Soft Money is that Hard Money is defined as the direct contribution to a specific personality. Whereas, Soft Money is defined as the indirect contribution done towards any political organization. The real difference lies in their type of contribution.
Hard Money is the fund generated for a certain specific purpose. Here, individuals donate the money to political communities. Unlike soft Money, it has limits set to spend money by the Federal Committee. Apart from this, it is used as a loan for buying real estate. They are the preferred option for long-term loans however their rate of interest is relatively high.
On the other hand, Soft Money is not generated for any specific use. It is also less common as compared to Hard Money. They are non-asset-based funds. However, pledged assets are by default kept as collateral. They are basically preferred for short-term loans. It however includes a lot of paperwork while closing.
Comparison Table Between Hard Money and Soft Money
| Parameters of comparison | Hard Money | Soft Money |
| Requirement | It is the loan required for specific needs. | It is the loan required for no particular need. |
| Interest Rate | The interest rates are usually high. | The interest rates are comparatively lower than that of hard money. |
| Paperwork | While closing, it requires a less amount of paperwork. | While closing requires a lot of paperwork. |
| Preference | They are a good option for long-term loans. | They are a good option for short-term loans. |
| Rules | It is flexible with simple rules and regulations. | It has strict rules and regulations. |
What is Hard Money?
Hard money has a comparatively strong and volatile exchange rate. It is preferred over soft money and is more in demand. It also does have a stable structure in finance and the market. This makes it compatible and trustworthy for all kinds of economic functions.
In political reference, Hard money means the money that is donated to a political organization directly. It involves low risk and various updated features. The transaction cost is minimal as well. Hard Money loan comprises physical assets with the proper value. This includes a car or home.
It has comparatively lesser risks than that of soft money. It is the type of funding that the government prefers. It also has certain arrangements and options for student scholarships. It is not just a one-time grant rather a reliable step payment.
This kind of fund has rules and restrictions set by the Federal Election Commission. Following the rules are compulsory and the cash is directly contributed to the political committee.
What is Soft Money?
Soft Money includes contributions outside the federal law in a state. It supports the same group the hard money does but differently. It is used for general activities. In specific conditions, it also helps in the election of candidates. However, it performs the work indirectly. It means the exchange between the donor and committee is indirect.
It is not limited hence any amount of cash can be donated. Soft Money is considered a very favorable choice for the borrower. However, considering all the facilities, it might not be the most reliable.
The whole concept of Soft Money was started in the year after the Federal Election Campaign act commonly known as FECA. Apart from a low rate of interest, they include other facilities such as longer repayment methods and insurance policies.
They are very easy to acquire and the rate of interest is quite low as compared to Hard Money. The main focus is the credit source. They are not governed by any such national state standards.
Main Differences Between Hard Money and Soft Money
- The main difference between Hard Money and Soft Money is that Hard Money is defined as the direct contribution to a specific personality. Whereas, Soft Money is defined as the indirect contribution done towards any political committee.
- Next coming to a very important factor, the rate of interest. The interest rates are usually high in Hard Money. The interest rates are comparatively lower in soft money.
- Hard Money is a good option for long-term loans. Soft Money is a good option for short-term loans.
- While closing, Hard Money requires less amount of paperwork. On the other hand, Soft Money While closing requires a lot of paperwork.
- Hard Money is flexible and has simple rules and regulations. Whereas, Soft Money has strict rules and regulations.
Conclusion
Hard Money and Soft Money are both values but they differ in their types. For example, the approval process for hard money is very long whereas it is short for soft money. It varies in several other fields ranging from the rate of interest to paperwork processes. It also differs in the steps of the process involved. Soft Money does not have any limits for donation whereas Hard Money does. According to the survey, Hard Money is more widely used as compared to soft money. Due to their limitation policies, they are by far considered the most reliable source.
The choice is upon people. They both provide a vast range of opportunities that differ from each other. The main point needs to be clear. If their features are not known to the people, they might end up having the wrong idea. Hence a brief introduction of both is necessary. It is enough to highlight their distinct features and hence differentiate between the two.
References
- https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/jleg24§ion=17
- https://www.everycrsreport.com/files/20020315_97-91_63a195b743a7cc56726755426d587c3101d034c6.pdf