Mercy Maranga writes content on Finance and Debt Management. Visit her site here for more information on Finance and how to effectively Manage your debts. Debt
A debt is that which is owed. A financial debt refers to what is owed in terms money. This type of debt occurs when a creditor lends money to a debtor for example it could be in the form of a loan. Sometimes this type of debt can be as a result of purchasing assets, goods or services on credit. Here, the debtor is expected to pay in terms of a sum of money. A creditor always expects a repayment with or without interest depending on the terms of the agreement. In cases of a loan, repayment is always with interest.
Normally a debtor and a creditor agree on manner of repayment in what is known as the standard of deferred payment. Repayment of a financial debt is normally in terms of a sum of money in units of currency. 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 or unsecured, private or public, syndicated or 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. A financial debt can also be in the form of a private debt. A private debt is created when for example an individual goes for a bank loan.
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