A creditor is an individual or institution that provides a loan to a borrower. The borrower is expected to repay the money with interest, according to the terms of the loan agreement. If the borrower doesn’t pay back the loan on time, the creditor may take legal action against him or her.
In most cases, a creditor is a financial institution however it could be any person who is owed money. A creditor provides many different types of services to debtors, such as mortgages, personal loans, and credit cards.
A creditor has the right to demand repayment of a loan. If payment is not made, the creditor may seek legal remedies, such as filing a lawsuit against the debtor, garnishing wages or seizing property. Creditors may also assess penalties for late payments. Knowledge about creditors and debtors is important in accounting for instance while writing a trial balance. See more.
Some common types of creditors include:
Accounts or individuals that supply goods or services to a business in credit or where payment is not due yet, and they expect to be paid in the future are called sundry creditors. Visit here for more information.
How do creditors earn money?
There are three ways that creditors make money.
There is another way creditors make money that is by charging fees for making loans. Additional way creditors can make money is by taking advantage of fluctuating prices: they can buy an asset from someone in the future at a low price, hold it until its price rises, and then sell it back to the person in the future for more than they paid for it
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