ANNUAL DEBT SERVICE Meaning and
Definition
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Annual debt service refers to the total amount of money required to make regular payments on a debt obligation, usually a long-term loan or bond. It refers to the annual amount that a borrower must pay to a lender in order to satisfy the terms of a debt agreement, including both principal and interest payments.
The annual debt service can be calculated by summing up all the required payments over the course of a year. This includes the regularly scheduled principal repayments as well as the interest payments, which are typically charged at a predetermined interest rate. It is important to note that the annual debt service does not account for any additional fees or charges that may be associated with the debt agreement.
The annual debt service is a critical metric for borrowers as it affects their ability to repay the debt without defaulting. Lenders also look at the annual debt service when evaluating the creditworthiness of borrowers, particularly when assessing their ability to generate sufficient cash flow to meet the debt obligations. This information helps lenders determine the risk associated with the debt and decide on an appropriate interest rate and loan terms.
Overall, the annual debt service is an essential indicator of a borrower's financial health and their capacity to meet debt obligations over a specific period of time.
