Types of Debt |
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There are numerous types of debt obligations. They include loans, bonds, mortgages, promisary notes, and debentures. It is very common to borrow large sums for major purchases, such as a mortgage, and pay it back with an agreed premium interest rate over time, or all at once at a later date. The amount of money outstanding is usually called a debt. The debt will increase through time if it is not repaid faster than it grows. In some systems of economics this effect is termed usury, in others, the term "usury" refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted.
Large organisations can break their debt into many small units of debt, known as bonds. Each bond entitles the holder to the remaining repayments on that unit of debt. Bonds can be traded during the repayment period, and so ownership of the debt is seen as a form of investment.
Because bonds are traded on the bond market, they have a fluctuating price. This implies that the overall debt represented by the total number of any particular type of bond also has a fluctuating price.
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