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Debenture vs. Loan: What's the Difference?

Edited by Huma Saeed || By Sawaira Riaz || Published on December 20, 2023
A debenture is a long-term security issued by a company, backed only by its creditworthiness, while a loan is borrowed money that must be repaid with interest.

Key Differences

A debenture is a type of debt instrument not secured by physical assets or collateral, issued by companies to raise capital, promising to pay interest and principal. In contrast, a loan is a sum of money borrowed from a lender that requires repayment with interest, often secured by collateral.
Sawaira Riaz
Dec 20, 2023
Debentures are typically unsecured and rely on the creditworthiness and reputation of the issuer for investor confidence. Loans, however, can be secured or unsecured, and their approval usually depends on the borrower's credit history and ability to repay.
Sawaira Riaz
Dec 20, 2023
The interest rates on debentures are often fixed and are known to investors at the time of investment. Loans can have either fixed or variable interest rates, which can change over the loan's term.
Huma Saeed
Dec 20, 2023
In case of bankruptcy, debenture holders are considered unsecured creditors and are paid after secured creditors and bondholders. Loan lenders, especially those with secured loans, have the right to seize the collateral if the borrower defaults.
Sawaira Riaz
Dec 20, 2023
Debentures are a common method for large companies to raise funds without diluting equity. Loans are a more versatile financial tool, used by individuals, businesses, and governments for various purposes including personal finance, business expansion, and public projects.
Janet White
Dec 20, 2023
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Comparison Chart

Security

Unsecured, no collateral
Can be secured or unsecured
Sawaira Riaz
Dec 20, 2023

Issuer/Borrower

Issued by companies
Borrowed by individuals, companies, governments
Sawaira Riaz
Dec 20, 2023

Interest Rate

Usually fixed
Fixed or variable
Sawaira Riaz
Dec 20, 2023

Purpose of Issuance

To raise capital for the issuer
Various purposes, personal or business
Sawaira Riaz
Dec 20, 2023

Repayment in Bankruptcy

Paid after secured creditors and bondholders
Secured loans paid first, then unsecured
Sawaira Riaz
Dec 20, 2023
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Debenture and Loan Definitions

Debenture

A long-term security issued by a company without collateral.
The corporation issued debentures to finance its new factory.
Sawaira Riaz
Dec 09, 2023

Loan

Borrowed capital often secured by collateral.
They used their house as collateral for the loan.
Sawaira Riaz
Dec 09, 2023

Debenture

A corporate financial instrument for raising capital.
To expand its operations, the company decided to issue debentures.
Sawaira Riaz
Dec 09, 2023

Loan

A financial arrangement where a lender provides funds to a borrower.
The business secured a loan to finance its new project.
Aimie Carlson
Dec 09, 2023

Debenture

A debt instrument backed solely by the issuer's creditworthiness.
Investors bought debentures, trusting in the company's strong financial health.
Sawaira Riaz
Dec 09, 2023

Loan

A sum of money borrowed that must be repaid with interest.
She took out a loan to pay for her education.
Huma Saeed
Dec 09, 2023

Debenture

An unsecured bond promising to pay interest and principal.
The debentures offered a higher interest rate due to the lack of collateral.
Aimie Carlson
Dec 09, 2023

Loan

A lending agreement with specified repayment terms and interest.
The loan had a five-year term with a 4% annual interest rate.
Janet White
Dec 09, 2023

Debenture

A fixed-income security not secured by physical assets.
The debentures were attractive to investors seeking regular income.
Harlon Moss
Dec 09, 2023

Loan

Money lent for personal, business, or governmental purposes.
The government issued a loan for infrastructure development.
Aimie Carlson
Dec 09, 2023

Debenture

A certificate or voucher acknowledging a debt.
Sawaira Riaz
Dec 08, 2023

Loan

An instance of lending
A bank that makes loans to small businesses.
Sawaira Riaz
Dec 08, 2023

Debenture

An unsecured bond issued by a civil or governmental corporation or agency and backed only by the credit standing of the issuer.
Sawaira Riaz
Dec 08, 2023

Loan

A sum of money that is lent, usually with an interest fee
Took out a loan to buy a car.
Repaid the loan over five years.
Sawaira Riaz
Dec 08, 2023

FAQs

Are debentures secured?

No, they are typically unsecured.
Sawaira Riaz
Dec 20, 2023

What is the interest rate like for debentures?

It's usually fixed and known at issuance.
Janet White
Dec 20, 2023

What is a debenture?

It's an unsecured debt instrument issued by a company.
Sawaira Riaz
Dec 20, 2023

Can loans be unsecured?

Yes, loans can be either secured or unsecured.
Aimie Carlson
Dec 20, 2023

Do loans have fixed interest rates?

Loans can have either fixed or variable interest rates.
Janet White
Dec 20, 2023

Who can take out a loan?

Individuals, businesses, or governments.
Harlon Moss
Dec 20, 2023

Why do companies issue debentures?

To raise capital without diluting equity.
Aimie Carlson
Dec 20, 2023

What is a loan?

It's borrowed money that must be repaid with interest.
Huma Saeed
Dec 20, 2023

What happens if a loan is defaulted?

If secured, the collateral can be seized; if unsecured, legal action can be taken.
Harlon Moss
Dec 20, 2023

What is a secured loan?

It's a loan backed by collateral.
Sawaira Riaz
Dec 20, 2023

For what purposes are loans taken?

For various personal, business, or public projects.
Sawaira Riaz
Dec 20, 2023

Can individuals issue debentures?

No, debentures are typically issued by companies.
Aimie Carlson
Dec 20, 2023

Who issues debentures?

They are issued by companies.
Aimie Carlson
Dec 20, 2023

What happens to debentures in bankruptcy?

Debenture holders are unsecured creditors and are paid after secured creditors.
Janet White
Dec 20, 2023

Are debentures a long-term financial tool?

Yes, they are generally long-term debt instruments.
Janet White
Dec 20, 2023

Is collateral required for debentures?

No, debentures do not require collateral.
Aimie Carlson
Dec 20, 2023

Can companies take out loans?

Yes, companies often take out loans for various needs.
Aimie Carlson
Dec 20, 2023

Can loans be short-term?

Yes, loans can be both short-term and long-term.
Harlon Moss
Dec 20, 2023

How do investors make money from debentures?

Through fixed interest payments.
Janet White
Dec 20, 2023

How is the interest on loans paid?

It's usually paid monthly, but terms can vary.
Harlon Moss
Dec 20, 2023
About Author
Written by
Sawaira Riaz
Sawaira is a dedicated content editor at difference.wiki, where she meticulously refines articles to ensure clarity and accuracy. With a keen eye for detail, she upholds the site's commitment to delivering insightful and precise content.
Edited by
Huma Saeed
Huma is a renowned researcher acclaimed for her innovative work in Difference Wiki. Her dedication has led to key breakthroughs, establishing her prominence in academia. Her contributions continually inspire and guide her field.

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