Legal Definitions - long-term debt

Long-term debt refers to a financial obligation that is not expected to be repaid within one year from the date it was incurred or from the current accounting period. Instead, these debts have an extended repayment schedule, often spanning several years or even decades. It represents money owed that will be settled over an extended future period.

• Example 1: Home Mortgage

  A family purchases a new home and secures a mortgage loan with a 30-year repayment term. This mortgage is a classic example of long-term debt because the obligation to repay the loan principal and interest extends over three decades, far exceeding the one-year threshold.

• Example 2: Corporate Bonds

  A large technology company decides to build a new research and development facility. To finance this multi-million dollar project, the company issues corporate bonds that mature in 10 years. The money borrowed from investors through these bonds constitutes long-term debt for the company, as the principal repayment is not due for a full decade.

• Example 3: Student Loan

  An individual takes out a student loan to cover tuition and living expenses for a four-year university program. After graduation, the repayment period for this loan is set for 15 years. This student loan is considered long-term debt because the borrower is obligated to make payments over a period significantly longer than one year.