What is Debt?
Debt can be described loosely as something that is owed. In financial terms, debt occurs when a lender (creditor) transfers money or extends credit to a borrower (debtor) but does not receive immediate repayment (settlement). Effectively, debts are generated when a creditor lends money to a debtor, in return for repayment with interest over an agreed period of time.
Debt Repayment
Prior to a debt being created, the creditor and debtor agree the terms of the debt. This agreement will include:
- The currency of the debt
- The interest on the debt
- The debt repayment schedule
- The term of the debt
- The collateral used by the debtor to safeguard what is owed to the creditor.
Varieties of Debt
There are many types of financial debt. These include:
- Loans
- Credit cards
- Consumer credit agreements
- Mortgages