When money needs to be repaid, it's a debt. Debt holders, also referred to as debtholders, are people, businesses, governments or other entities that lend money and are owed that money.
As you navigate the world of personal finance, you'll come into contact with debt holders or be one yourself. For example, if you have a credit card with a balance, you have debt. If you buy government bonds, you own debt. Understanding the debt holder definition and how different types of debt work will help you better manage your personal finance.
Video of the Day
Read More: Private Debt vs. Public
Overview of Debt
People lend and borrow money for a variety of reasons. Family members might lend each other money without interest to help each other out. Governments issue bonds to finance their operations, offering a guaranteed, secure, but low-return financial investment. Businesses borrow money to help pay bills during tough times or finance expansion during good times. Consumers borrow money to buy homes and cars, finance education or get help with everyday spending.
Debt is an amount of money owed. It usually has a defined payback period and an interest payment or other financial benefit for the lender. Many consumers often go into difficult credit card debt. Stock is not a debt%20and%20mortgages.&text=Stocks%20are%20securities%20that%20are,a%20corporation%20(Mishkin%201998).) because it's a claim against the future performance of the company with no guarantee of repayment.
Read More: Debt Repayment Definition
Common Debt Terms
Some debt is secured with an asset. For example, a bank will lend a business $100,000, but the business must use its building or inventory as collateral. Collateral is usually larger than the debt amount so that the lender can quickly dispose of it if the borrower defaults. Unsecured debt is a loan that isn't tied to collateral. Since this debt is risker, it usually comes with higher interest rates.
Lenders set timelines for repayment of debt. For example, credit card companies require a monthly minimum payment and charge interest on outstanding debt. Mortgage lenders typically offer 15- and 30-year mortgages. Some lenders offer fixed-rate loans, while others offer variable rates.
Debt is a key factor investors look at when deciding whether or not to buy stock or finance a business. Banks and other lenders also look at debt when considering whether or not to make a business loan or issue a credit card. Credit card scoring companies use the amount of debt you have to determine your credit score, according to myFICO.
Some lenders require regular monthly payments, but add a "balloon payment," which is a large amount of money the lender feels the borrower should be able to repay after six months or a year.
Read More: What Is Personal Debt?
Debt Holder Rights
The main right of debt holders is to be repaid. After that, they expect interest. In some cases, certain debt holders have more rights than others. For example, if a business goes into bankruptcy, secured creditors are paid before unsecured creditors.
Debt holders can sue in court to collect their loans and interest. Depending on the terms of the loan, the creditor might have to go through arbitration, rather than a court case, or might have to agree to settle legal differences in a state or jurisdiction of the lender's choosing.