What term describes money that a person, organization, or government owes to another?

• A. Debt
• B. Interest rate
• C. Loan
• D. Collateral

Answer: (A)

Debt is the money owed to someone else, a liability that you must repay. It represents the outstanding amount you owe, including any interest that has accumulated. A loan is the borrowing arrangement that creates that debt—the actual sum borrowed and the terms to repay. The interest rate is the cost of borrowing, expressed as a percentage, which influences how much the debt grows over time. Collateral is an asset pledged to secure the loan, reducing the lender’s risk, but it isn’t the money owed itself. For example, borrowing $1,000 creates a debt you owe back, and the terms of the loan—and the interest rate—determine how much that debt will cost you over time.