What's the Difference Between a Creditor and a Debtor?

When it comes to lending and borrowing money, there are typically two main figures: the creditor and the debtor. The creditor and debtor enter a contract together,¹ with creditors lending money and debtors borrowing it. But their relationship goes beyond a credit card or a personal loan.

Let’s break down the different roles of creditors and debtors. Understanding their financial and legal responsibilities could help you make the best decisions for your budget.

What is a creditor?

A creditor is another word for a lender: a person or company — like a bank — that provides money, goods or services with the expectation of being repaid later. Creditors can lend money in a lump sum or provide a revolving line of credit in the form of a credit card or home equity line of credit (HELOC), for example.

If you take out a loan from a bank, the bank is the creditor because they are giving you money with the agreement that you will pay it back, usually with interest.²

What is a debtor?

A debtor is another word for a borrower: someone who owes money to a creditor and agrees to pay it back. Debtors can include individuals who take out personal loans, use credit cards, buy goods or services and pay later, or borrow money from others — including family members, banks or businesses.

Being a debtor isn’t a bad thing. Debt can be a useful tool to help you create and build a healthy credit score and reach your financial goals. The important thing is to borrow wisely, make payments on time, every time, and keep your debt manageable.

Think of big-ticket purchases like a car or a home. Instead of needing to have the money up front, you can buy what you need now using a loan, and pay that loan back in smaller, easier payments. By keeping up with loan payments, borrowing money can help you reach your goals while still having funds for other needs.

What are the main differences between creditors and debtors?

Creditors and debtors play opposite roles in the borrowing process:

Key Points	Creditor	Debtor
Role	Creditors take on lending risk by lending money or extending credit that can be used to buy goods or services. Borrowed funds often come in the form of a personal loan, repaid in installments, or as revolving accounts like a credit card, charge card or even overdraft privileges tied to a debit card or checking account.	Debtors borrow money or get cash advances in the form of a loan or credit to buy goods or services or to pay off existing debt.
Examples	Banks, credit unions, lenders, credit card companies, merchants and individuals	Individuals, organizations and businesses that borrow money or use credit
Legal responsibilities	• Provide clear loan terms including repayment amount, interest rate and APR, loan terms, and any fees • Follow lending laws and practice fair lending • Protect debtor information • Provide loan documents • Provide accurate calculations of what is owed • Maintain financial safety to protect their own stability	• Repay borrowed money, along with any interest and fees, on time, every time, until the entire amount is paid in full • Follow the terms of the loan or credit card agreement

Are there laws that protect debtors?

Yes, there are laws to ensure fair treatment when applying for and repaying credit. For example, lenders must follow rules that prevent discrimination when reviewing credit applications, like the rules outlined in the Equal Credit Opportunity Act (ECOA). The ECOA requires lenders to consider each application fairly, without bias based on race, gender, age or other protected status.³

Other protections may apply once you receive a loan or line of credit — especially when it comes to how the debt is collected. The Fair Debt Collection Practices Act (FDCPA) prevents third-party debt collectors from using unfair, abusive or deceptive tactics.⁴ For instance, they can’t call at unreasonable hours, harass you or misrepresent the amount you owe. While not all creditors are legally required to follow the FDCPA — such as individuals or businesses collecting their own debts — many still choose to follow its guidelines.

Another example of a law that protects debtors is the Fair Credit Reporting Act (FCRA). The FCRA gives you the right to see your credit report, request a credit score and dispute any mistakes. It also limits who credit bureaus can share your information with and requires them to correct errors in a timely manner.⁵

How creditors take action if a debtor doesn’t pay

If a debtor fails to make payments as agreed, creditors typically begin with reminders or late payment notices. If the debtor still does not pay, certain actions may happen automatically based on account activity or failure to act, such as:

• Charging late fees: Creditors may charge a late fee when a debtor misses a payment, which will add to the total amount owed.
• Reporting to credit bureaus: The payment status of the account is reported to credit bureaus once a month⁶, whether payments are made or not. Usually, if a payment is 30 days late, it may be reported as delinquent, which could lower the debtor’s credit score.⁷
• Taking legal action: In the loan or cardholder agreement, the creditor is given the legal right to sue the debtor to recover the money they’re owed.8
• Repossessing collateral: If you have a secured loan, it’s backed by something of value in your possession (like a car) called collateral. If you fail to repay the loan, the lender has the right to seize the collateral according to local laws.

To avoid these issues, debtors should check all the legally binding documents before closing the loan to understand the legal and collection actions a creditor can take if the loan is not repaid.

Many creditors are willing to work with debtors who are going through a difficult time. If you’re having a hard time making payments, it’s important to contact your creditor early. Communicating your situation may help you explore options like a payment plan, temporary hardship programs, or fee waivers.

---

---

Know where you stand on your financial journey

When managed responsibly, debt can help you cover important expenses, build credit and move toward your goals. Before you borrow, it’s important to understand your budget and what you can afford. Knowing where you stand could help you make confident decisions and stay in control of your finances.

Sources:

1 https://www.investopedia.com/terms/d/debtor.asp
2,6 https://www.investopedia.com/terms/d/debtor.asp
3 https://www.ftc.gov/legal-library/browse/statutes/equal-credit-opportunity-act
4 https://www.consumerfinance.gov/ask-cfpb/what-is-an-unfair-deceptive-or-abusive-practice-by-a-debt-collector-en-1401/
5 https://files.consumerfinance.gov/f/documents/bcfp_consumer-rights-summary_2018-09.pdf 7, 8 https://www.equifax.com/personal/education/credit-cards/articles/-/learn/when-late-credit-card-payments-post/