Debt vs. Loan — What's the Difference?

Debt is a broader term encompassing any money, goods, or services owed by one party (the debtor) to another (the creditor). It can arise from various sources, not limited to monetary loans, and includes obligations like bonds, mortgages, and credit card balances. A loan, however, specifically refers to a sum of money borrowed that must be paid back with interest, representing one way an individual or entity can incur debt.

Loans are structured agreements with defined terms, including the amount borrowed, interest rate, repayment schedule, and the loan's duration. These specifics outline how the loan will be repaid over time. Debt, on the other hand, might not always have such structured or clear terms and can include a wider range of obligations, from informal agreements to financial instruments like bonds.

Interest rates are a key component of loans, determining the cost of borrowing money. Debt may or may not involve interest, depending on its nature; for instance, interest is typically associated with loans and credit cards but may not apply to informal debts or other types of obligations.

The process of managing loans involves regular, often monthly, payments that include both principal and interest, systematically reducing the outstanding balance until the loan is fully repaid. Debt management can be more varied, involving strategies to pay off multiple debts, potentially restructuring or consolidating debts to more favorable terms.

Loans can be secured or unsecured, with secured loans requiring collateral that the lender can claim if the borrower defaults. While this concept directly applies to loans, the broader category of debt can also include both secured and unsecured forms, depending on the agreement and the type of debt incurred.