Loan vs Debt
For a common man, there is no difference between loan and debt. However, when a person needs money to fulfill his dreams of a home for his family, he applies for a loan from a bank or any other financial institution and not for a debt. But when an individual is hard pressed to pay back the loans he has taken, he is said to be under a debt trap and debt consolidation loans are suggested as a way to come out of the financial mire he founds himself in. If loan is debt and a debt is also a kind of loan, what then is the difference between these two terms?
A company, when it is expanding and needs capital to purchase plant and machinery, can either go for loans from financial institutions or it can issue bonds to general public. It can also sell stocks in the form of shares to the public. When an accountant prepares financial statement of the company, on the liability side we find mention of all the loans and debts. While money obtained from private lenders and banks is considered as loans, the money raised through issuance of bonds and shares to common public is treated as debt of the company.
This makes it clear that both loans and debts are liability of the company and it has to make provisions for paying back the money take. Whereas loans require regular payments along with interest, company pays only interest on bonds and has to pay back the principal amount at the expiry of the term of the bond.
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In brief: Difference Between Loan and Debt • When you are in a financial mess unable to payback the loans you have taken from several lenders, you go for debt consolidation • All loans are merged together and you get a debt consolidation loan from a single creditor • In the case of a company, money borrowed from banks is treated as loans and money raised by issuance of bonds to public is referred to as debt of the company. • All loans are part of a large debt • Loans and debt taken together are considered as liability of the company.
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