The holder loans the issuer a debt (which the issuer thus owes), and is obliged to pay an interest (known as the coupon) at fixed intervals (semiannual, annual, and sometimes monthly), on top of repaying the principal at a later date (known as the maturity date). The bond can be exchanged on a secondary market, so is highly liquid. The issuer issues loans, to fund long-term investments, or for governments, current expenditure.

Because bondholders are creditors, they have priority for repayment before shareholders in the event of bakruptcy.