What does a creditor do?

In most cases, a creditor is a financial institution that gives money to customers in the form of loans and credit cards with the expectation that the borrower will pay back the amount. A creditor could also be an individual who lends money to a friend or family member.

The person borrowing the money or taking out the credit is known as the debtor. Creditors often make money by charging interest to the person or organization borrowing the money. There are different types of creditors that vary based on the type of credit they issue.

For example, some creditors issue loans secured with collateral (meaning an asset they can seize if the borrower doesn’t pay back the debt), while others, such as credit card companies, issue unsecured debt. Governments and other entities can also be creditors.