Definition

Debt refers to amount of money borrowed by one party from another, under the condition that it is to be paid back over a debt instrument’s lifetime and at maturity. Bonds and loans are examples of debt products. In real estate, debt is senior relative to equity investments, which means that debtors or creditors are first in line to receive payments resulting from, and in the event of, a liquidation. Debt service refers to the cost of carrying a loan, usually through monthly payments, including the payment of interest and principal. Companies with high debt/equity ratio are generally considered more risky to both creditors and investors. Debt financing requires debt servicing or regular interest payments, and can be a more expensive form of financing than equity financing.