Debt

A debt is that which is owed. What is owed can be in terms of assets, moral obligations as well as in other forms that do not necessarily require money. Debts in reference to assets refer to the means of using future purchasing power in the present before a summation has been earned. Debts occur when creditors lend assets to debtors. A creditor always expects a repayment with or without interest depending on the terms of the agreement. Often however, the repayment is always with interest.

Normally a debtor and a creditor agree on the manner of repayment in what is known as the standard of deferred payment. Repayment of a debt is normally in terms of a sum of money in units of currency. In other cases however, the repayment may be in terms of goods. Payment can be done in installments over a period of time or it can be paid once in a lamp sum at the end of a loan agreement.

Debts can be categorized as secured and unsecured, private and public, syndicated
and bilateral. Secured debts are created when borrowers pledge assets for example land as collateral for the loan. If the borrowers default, the lenders take possession of the assets which they may sell to recover their money.

Unsecured debt is when there is no collateral. Private debts are created when for example an individual goes for a bank loan while public debts refer to financial instruments that are freely tradable on a public exchange.