A comprehensive guide to Debentures

When a person takes a loan from any person or a bank, they become the debtor because the bank pays the money on his behalf, and he has to pay the debt or the rented money taken from the bank at a certain interest rate that he would pay soon as per the agreement signed between the bank and him.

Debt, in the words of capital or money, is the amount that has to be paid to the bank under a stipulated period.

Debt meaning

Debt means the amount of money or sum that one borrows from a friend, family or bank to invest a large amount on things like property, car, medical bills etc. It is the money or the amount that is lent by the person or the bank which has to be paid back at a certain rate in the case of banks over a decided period.

This money is highly useful when a person is running short of money but needs the sum in case of emergencies. The debt is the lent money that is paid back over an agreement signed between the lender and the buyer.

Major points regarding the debt

1. Debt is always the money that is lent from a bank or a person and is borrowed in case of emergency.
2. It is used by people in case of emergencies or when they are running short of money and have to make a big transaction.
3. This is money that is granted by the bank but has certain rules and regulations that need to be followed during the transaction as well as during the payback.
4. The debt that is issued by the bank has a certain interest rate mentioned which applies to the amount issued by the bank. The amount that has to be; paid back to the bank is calculated based on the interest rate issued by the bank as per the agreement signed between the bank and the user.
5. If a person fails to pay the debt to the bank, the bank is liable to take any legal actions against the defaulter as well as has the power to take over the property or any valuable thing kept as a mortgage.

Types of Debt

There are mainly four types of Debt:

1. Secured Debt- A secured debt is a debt that requires the person to keep something like a mortgage because the amount issued by the bank is large. It needs something to be kept as security because, in case of non-payment of the money, the bank can take charge of it.
2. Unsecured Debt- An unsecured debt is a debt that doesn’t need any guarantee or security from the; person. The amount is issued by the bank without keeping anything under security.
3. Revolving Debt- A revolving debt is a kind of debt that allows the person to use the sum continuously that is borrowed and pay it back to the bank and can again borrow the same money if he wishes to.
4. Mortgage- A mortgage is like a security that is needed by the bank so that if it doesn’t get the money from the bank, that particular property or a valuable item is owned by the bank.

Debenture meaning

Often one gets confused between debt and debenture as they sound similar, but the meaning of both terms varies.

A debenture is a type of bond that is signed between the user and the bank, but it has no security attached to it. A Debenture usually depends on the reliance and truthfulness of the client. A debenture is a kind of bond that is signed for a certain period of time between the user and the bank.

In simple words, it is like periodic installments that need to be paid back from time to time in order to avoid the overdue amount.

Types of debentures

Just like there are four types of debts, debentures are also of seven types:

1. Registered Debenture
2. Bearer Debenture
3. Redeemable Debenture
4. Secured Debenture
5. Perpetual Debenture
6. Irredeemable Debenture
7. Unsecured or Collateral Debenture

Let’s understand the secured debenture in detail.

A secured debenture is a type of debenture in which a security is provided by the client on the issuing of the bond. This security in the form of any value is added to the bond in case the client fails to provide the money back to the user.

Conclusion

The amount taken from the bank or from any user comes at its own risk. There are pros and cons attached to the issuing of a large sum of money from the bank because it is borrowed money, and the bank has the right to get its money back but at a certain interest rate.

The rules and regulations mentioned on the agreement paper should be studied thoroughly and then signed because the terms and the conditions presented to the client imply throughout the period of the lending.