The Finance Owl

Banks – Loans – Mortgages – Money

What is Debt?

DebtDebt can be loosely described 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).

In the explanation above, debts are generated when a creditor lends money to a debtor, in return for repayment with interest over an agreed period.

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 the creditor.

Types of Debt

There are many types of financial debt. These include:

  • Loans
  • Credit cards
  • Consumer credit agreements
  • Mortgages