Debt forms when one entity borrows money from another. Often, debt forms to cover the cost of a large purchase, which otherwise one can’t afford. These types of debt arrangements allow the borrowing entity to borrow funds by setting up installment payments and generally includes interest.
James was looking to purchase an investment property listed at $200,000. He currently has $150,000 available to purchase the property and will need to borrow $50,000 to complete the purchase. James takes out a hard money loan for $50,000 which now gives him a $50,000 debt to the lender in which he will pay back in monthly installments, with interest.