![]() ![]() On the opposite side, a company that does not make use of debt may miss opportunities for business expansion. It will, therefore, be putting the business in danger of insolvency. A company having a large amount of debt may be unable to fulfil interest payments if its sales fall. A debt that can be repaid without a default is a 'Good Debt'. How much debt the company or individual can afford to take depends upon its/his financial standing or the difference in asset and liability. It is imperative to learn about two terms 'Good Debt' and 'Bad Debt' to know about the importance of debt. Letter of Credit and Guarantee are other types of financing options.īanks play an essential role in facilitating loans, acting as lenders and are regulated by the Reserve Bank of India (RBI). Alternatively, they may look into the capital structure and may include debt in it, such as term loans or bonds. Companies may use debt for their working capital or day-to-day operations. On the other hand, corporates have a multitude of options when it comes to debt. In the case of individuals, debt is a way to use an anticipated income combined with the future purchasing power at present before earning the same. Popular types of debt owed by households and individuals are mortgage loans, car loans, credit card debt, and income taxes. The word 'debt' is derived from an old french word 'dette' that means an obligation. So, the borrower will return the principal amount together with the interest amount along the period of loan repayment. One person can lend debt to another at a fixed or a floating interest income. Most popular kinds of debt are loans with or without mortgages and credit card debt. What is Debt?ĭebt refers to sum of money owed by one person and due to another person. ![]() At times, our earnings may not be sufficient to achieve our goals and so we turn to loans and debts at a price. As we grow, we began to work to support our family and in turn, achieve our long term goals. Back in school, a lot of us would have borrowed a pencil at school to be returned later.
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