What is Debt?
Debt is money owed by one person to another. It can be in the form of a loan, such as a mortgage or a car loan, or it can be in the form of credit, such as a credit card balance. Debt can also refer to the amount of money owed by a business to its creditors, such as suppliers or banks. When someone is in debt, they are said to be "indebted.
What are the different types of debts?
Types of debts:
Secured Debt
Secured debt is debt that is secured by collateral. This means that a creditor will have the right to take possession of the asset used as collateral if the borrower defaults on the loan. Common examples of secured debt include mortgages, car loans, and home equity loans.
Unsecured Debt
Unsecured debt is any form of borrowing where there is no collateral securing the loan. Credit card debt and personal loans are both types of unsecured debt.
Revolving Debt
Revolving debt refers to a type of credit account with a pre-set credit limit where payments can be made over time with interest charges added onto them if payments aren’t made in full each month. Credit cards are one example of revolving debt—borrowers have a set limit but can make purchases up to that amount and then pay it off over time (usually monthly).
What are debt instruments?
In India, some of the most common debt instruments include bonds, leases, promissory notes, certificates, mortgages, and treasury bills. Each of these instruments has its own specific purpose and terms. For example, a bond is typically used to finance large projects such as infrastructure development, while a lease is typically used to provide financing for equipment or property. Promissory notes, on the other hand, are often used to secure loans from banks or other financial institutions. Whatever the purpose, debt instruments can be an important part of a company's financing strategy.
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