A claim, also called debt, is a term that refers to an amount of money owed to someone else.
Types of Debt
There are several types of debts. Here are a few:
- Secured Debt: This is a type of debt that is guaranteed (secured) by an asset, such as a house or a car. A car leasing, for example is often considered a “secured debt” in that the item is held as collateral by the lessor. If the borrower fails to make the required payments, the lender (or lessor) can sell it and claim any loss incurred.
- Unsecured Debt: This type of debt is not guaranteed by any asset in particular. Credit cards, credit lines, and personal loans are common examples of unsecured debt.
- Installment Loan: This is a type of debt that is repaid in regular, fixed installments over a specific period. Mortgages and car loans are common examples of installment debt/loans.
- Mortgage: This is a specific type of secured debt, where the loan is guaranteed by the borrower’s real property (house or land). If the borrower fails to make the required payments, the lender can take possession of the property and, depending on the chosen legal proceeding, claim any loss incurred.
- Student Loan: This is a type of unsecured debt that is used to finance studies. It typically has a lower interest rate than other types of unsecured debts because it’s guaranteed by the Government.
- Credit Card Debt: This is a common type of revolving, unsecured debt. It typically has a higher interest rate than other types of debts.
- Personal Loan: This type of debt is said to be “on installment” because it is repayable in fixed monthly installments. This kind of loan is not secured by any of the borrower’s assets. It can be used for various purposes, such as consolidating other debts or paying for a significant expense.
- Business Loan: This is a loan taken out by a business for various purposes, such as expanding operations or purchasing equipment. It can be secured or unsecured.
- Government Debt: This refers to an amount owed to the government, often for unpaid taxes or income tax debt.
* Note: This is not an exhaustive list, as there are other, more specialized types of debts.
Forms of Debt
A debt can take the form of a contract, an invoice, or a commitment made by one person to another (e.g., a promise to repair a fence that someone might have accidentally broken). Those who have debts usually have to pay interest on the owed amount at a rate that must be determined in the contract.
In all cases, it is important for individuals to repay their debts in a timely manner in order to maintain a good credit record and prevent a decline in the quality of life due to excessive accumulation of debts.