Types of Debt

If you owe someone any money, it is termed as debt. A debt is created, when a creditor or the bank agrees to lend money to someone as a loan. Nowadays, a debt is granted to the debtor with the agreement that they have to pay it back. Most cases, the debts are repaid with interest. The lender and the debtor come to an agreement before the money is paid to the debtor. The terms of agreement are mainly based on the repayment conditions. This is known as the standard of deferred payment. This is usually denoted as sum of the money paid in units of currency. Sometimes, the exchange may take place in terms of goods. The payments can be made after the end of the loan agreement or can be paid as increments over a period of time.

Every company uses various types of debt to finance its operations. These are categorized into the following types:

1. Secured and unsecured debt.

2. Public and private debt.

3. Syndicated and bilateral debt.

Secured debts are those that have recourse to the assets of the home or company. Unsecured debts are those that have a financial obligation. Here the creditors do not have recourse to the borrower’s assets for satisfying their claims.

Public debt covers all the financial instruments that can be easily traded on a public exchange or over the counter. Except a few, the others do not have any restrictions. The private debts include bank-loan type obligations.

A risk management tool that is used by the lead banks is reducing the risk and thereby increasing the lending capacity is known as the loan syndication. A basic loan is termed as debt.

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