Layer 4 vs Layer 7 Load Balancing

A load balancer manages and carefully distributes the network traffic among backend servers.
In OSI Model we have 7 layers, Layer 4 is Transport layer and Layer 7 is Application layer.
To understand all Layers of OSI Model check out here. link

In layer 4 load balancing, the load balancer has limited data information. It only has visibility on network information which is the ports and the IP address of the client.
The load balancer doesn’t really know the content of the data it’s receiving because the data is usually encrypted or scrambled.
The decision of the choice of the destination is based on inbuilt software algorithm such as a round robin algorithm and by calculating the best server based on fewest connections and fastest server response times.

In layer 7 load balancing, the load balancer can access the application data and can be authorized to decrypt the data sent through the request.
Based on data (headers, url, etc..,) the load balancer can route the request to different backend server which can handle the request. This Intelligence cannot be Implemented in Layer 4 Load balancing.

In layer 7 load balancing, the load balancer might modify the content or even change the header if it has required Authorization.

In brief,
A Layer 4 load balancer works at the transport layer, using the TCP and UDP protocols to manage transaction traffic based on a simple load balancing algorithm and basic information such as server connections and response times.
A Layer 7 load balancer works at the application layer and makes its routing decisions based on more detailed information such as the characteristics of the HTTP/HTTPS header, message content, URL type, and cookie data.

Azure Load Balancer is example of Layer-4 load balancing.
Azure Application Gateway is example of Layer-7 load balancing.

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