credit instrument
A credit instrument is a promissory note or other written evidence of a debt. In other words, when someone borrows money from another person, signing a credit instrument allows this debt relationship to be clarified in writing, such as how much money owed, when to pay back the money owed, and the details of the borrower and lender. Some debts may be secured by collateral. Common examples include promissory note, bonds, loans, checks, stock certificates, a bill of exchange, or invoices. The purpose of having a credit instrument includes, but is not limited to, raising capital or generating investment returns. Credit instruments are used by governments, companies, and individuals alike seeking to keep track of who owes whom how much money.
There are two categories of credit instruments; credit instruments with general accessibility, credit instruments with limited accessibility. The former refers to the instruments that all members of a country are willing to accept in exchange for goods or services. The latter refers to instruments that only allow payments to happen under specific fields.
[Last reviewed in December of 2024 by the Wex Definitions Team]
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