What is a creditor?

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The word “creditor” can refer to a variety of meanings depending on the context but most commonly refers to a financial institution or a person from who a debtor, often known as a borrower, owes money.

A contract is formed when a debtor and a creditor agree on financing terms and enter a loan agreement. The repayment arrangement conditions of the loan, as well as the anticipated payment amounts, are frequently specified in that contract.

Real and personal creditors are the two types of creditors. Real creditors, such as finance corporations or banks, have legal agreements with borrowers that provide the lender the right to seize any of the debtor’s real property if they fail to repay the loan. On the other hand, personal creditors are those who lend money to friends and family.

The secured and unsecured creditors are two more types of creditors. Secured creditors are lenders who have a legal claim to the property that a person used as collateral to secure their loan, usually through a lien. Meanwhile, with unsecured creditors, a person may owe money, but it’s an unsecured debt, which means they haven’t consented to offer the creditor any property as collateral, such as a car or home, to settle the debt. An example of an unsecured creditor is a credit card company.

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Pieter Borremans
By Pieter Borremans

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