A creditor is a person or entity that loans another party money through an agreement or contract. Creditors such as banks can collect collateral like homes and cars on secured loans and take debtors to court over unpaid debts.
How can parties know they are a creditor?
If a person receives a court notice about a bankruptcy case where the debtor mentions them as someone they owe money to, then the person who is owed money is a creditor.
What are the different types of creditors?
There are four basic types of creditors. These include personal, real, secured, and unsecured.
- Personal creditor: Someone who loans money on personal levels, typically to friend or family member.
- Real creditor: A bank or other financial institution (such as credit card companies) with legally binding contracts that allow them to seize the borrower’s assets if they don’t repay the loan.
- Secured creditors: Lenders with a legal or contractual right to assets put up as collateral to secure a loan.
- Unsecured creditors: Lenders who have loaned money but did not secure assets to safeguard themselves against unpaid debt.
What do creditors loan money for?
There are several kinds of debts, but there are a few common reasons creditors may loan money, such as:
A home loan, also called a mortgage, is a loan to purchase a house. Home loan payments are typically monthly and the loan term can be 10 years or more.
An auto loan allows individuals to purchase an automobile, even if they can’t pay the full amount up front. Auto loans are usually for 10 years or fewer and are paid in monthly instalments.
An education loan or student loan can cover the cost of tuition, textbooks, dining, and housing expenses. Loan payments can begin six months after the last enrolment date.
Credit cards can offer a credit limit where the debtor can borrow against a set limit and pay it off and borrow again without needing to apply for an additional loan.
A payday loan is a short-term loan, usually given before the debtor’s next paycheck. The debtor borrows against money they expect to earn.