Debt is an amount of money owed by a borrower to a lender. It is used by individuals and corporations to make large purchases that they otherwise would be incapable of making given current cash holdings. A debt agreement provides terms that include the amount borrowed and the date at which principal and interest need to be repaid.
Common forms of debt for personal consumers include mortgages, auto loans and credit card debt. Terms of debt arrangements vary depending on the type of asset. For example, mortgages typically have terms of 15 or 30 years with an interest rate that is ultimately a gauge of the borrower’s creditworthiness. A mortgage is also a secured type of debt, meaning the lender has rights to obtain control of an individual’s home in the event a borrower is no longer capable of repaying the debts.
Corporate debt serves a similar purpose and is used by businesses to expand operations and grow revenues. Corporate debt is an agreement between investors and corporations in which investors provide corporations funds now in exchange for the return of principal and regular interest payments at a later date.