Debt

Debt is an obligation that requires one party, a principal & interest. Loans, bonds, notes, together with mortgages are all variety of debt. In financial accounting, debt is a type of financial transaction, as distinct from equity.

The term can also be used metaphorically to carry on moral obligations and other interactions not based on a monetary value. For example, in Western cultures, a person who has been helped by a second grown-up is sometimes said to owe a "debt of gratitude" to theperson.

Etymology

The English term "debt" was number one used in the late 13th century. The term "debt" comes from "dette, from Old French dete, from Latin debitum "thing owed," neuter past participle of debere "to owe," originally, "keep something away from someone," from de- "away" see de- + habere "to have" see habit n.. Restored spelling [was used] after c. 1400. The related term "debtor" was number one used in English also in the early 13th century; the terms "dettur, dettour, [came] from Old French detour, from Latin debitor "a debter," from past participle stem of debere;...The -b- was restored in later French, and in English c. 1560-c. 1660." In the King James Bible, only one spelling, "debtor", is used.

Principal is the amount of money originally invested or loaned, on which basis interest and returns are calculated.

There are three main ways repayment may be structured: the entire principal balance may be due at the maturity of the loan; the entire principal balance may be amortized over the term of the loan; or the loan may be partially amortized during its term, with the remaining principal due as a "balloon payment" at maturity. Amortization tables are common in mortgages and credit cards.

Debtors of every type default on their debt from time to time, with various consequences depending on the terms of the debt and the law governing default in the applicable jurisdiction. If the debt was secured by particular collateral, such as a car or home, the creditor may seek to repossess the collateral. In more serious circumstances, individuals and multiple may go into bankruptcy.