Creditor

A creditor can be defined as an individual, financial institution or a business entity that lends money to another entity under the agreement of repayment.

Types of Creditors

There are generally two types the creditors that can be defined as under:-

  • Personal Creditors
  • Real Creditors

Personal Creditors

Creditors are the people or individual those lend money to their close friends, relatives and family. This type of dealing is done on the trust and there is no legal or written agreement or document required for this type of lending and borrowing.

Real Creditors

These are the financial institutions, credit lending firms, banks and other business entities that lend or credit other business or commercial entities. In these kinds of dealings the borrowers have to sign some kind of legal agreement or document that bound the borrower to pay some sort of collateral against the loan acquired from the creditor. The collateral will be owned by the creditor if the borrower fails to repay the loan after certain interval of time. The examples of collateral are car, jewelry, land or home.

There are number of different kinds of creditors for the borrower depending upon the type of debt they are applying for. Others examples of the creditors that extend money lines or services to their borrowers include utility companies, health and fitness clubs, credit card issuing companies and mobile card pre paid services.

Importance of a Creditor

Creditor is a person that can help an individual or other person in the time of need by lending them the money they need. However there are certain benefits that exists for the creditor as well as listed below:-

  • Creditor has a legal right to sue the person or business entity if they fail to repay the loan
  • Creditor can also place lien on borrower assets if they fail to return the loan after a specific period of time

 

Other Related Accounting Articles:

Recommended Books !



Or

Download E accounting book in MS-word format for just 20 $ - Click here to Download


Leave a Reply

Your email address will not be published. Required fields are marked *