Debt

Debt is something owed. It usually references money, but can also cover other obligations as well. In the former case, debt is a means of using future purchasing power in the present before any interest has been earned. A debt is created when a creditor agrees to lend a sum of money to a debtor. In today’s society, debt is usually granted with expected repayment — in most cases, plus interest.

Before a debt can be made, however, both the debtor and the creditor must agree on the terms of repayment. This is usually denominated as a sum of money in units of currency, but can sometimes be described in terms of goods or services. Payment can either be made in increments over a period of time, or all at once at the end of the loan agreement.

The simplest form of debt is the basic loan. It consists of an agreement to lend a principal amount for a fixed period of time, to be repaid by a certain future date. Interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date.