A soft loan is a loan that features a below-market interest rate or no interest at all. These loans are also known for having unusually favorable terms, such as extended repayment periods and interest holidays. Soft loans are most commonly offered by governments or multinational development banks in order to spur development, or are extended to government entities that would otherwise not be able to afford the terms of normal loans. In the latter case, soft loans are intended to be a form of economic aid.
A soft loan is also known as soft financing.