A debtor is a person or organization that owes money to another person or organization, and a creditor is a person or organization that has loaned money to another. Debtors could be under contractual and legal obligation to their creditors, or they could simply have a verbal agreement that the debt will be repaid.Continue Reading
A common debtor and creditor relationship occurs when a person makes a purchase with a credit card. The debtor is the person who uses the credit card, and the creditor is the company to which the debtor makes payments. Individuals can also have a personal debtor-creditor relationship with each other. For instance, a man may borrow money from his brother with a verbal agreement that the debt will be repaid when the debtor is able.
Many times, especially when one or both parties is a large corporation, the debtor pays interest to the creditor during repayment. This means that the debtor pays a fee to the creditor that is directly proportionate to the amount of money borrowed and the amount of time it takes him to pay the money back. Including interest ensures that giving the loan is lucrative for the creditor in the long-term. Other common debt contracts occur in the buying of automobiles or real estate.Learn more about Accounting