A creditor is a person or organization to whom someone owes money. A creditor can be an individual, company, organization, or even government agency.

The terms and conditions laid down by creditors for the debt vary greatly. In general, creditors expect to be paid in cash (debit), whether as a lump sum or instalment. However, some creditors also accept service or other assets as form of payment, as long as the value of the asset or service to be rendered is equal to the amount of money owed.

Some of the basic terms included in arrangements between creditors and borrowers include:

• Loan term/period – The length of time for repayment of the loan in full.

• Payment terms – Instalment or lump sum, including frequency and amount of instalments.

• Interest rate – Note that interest rates are regulated by governments and so that creditors charging excessive interest rates can be penalized.

• Penalties – In case of late payments or any other breach of contract by the borrower such as wanting to pay the loan in full before the loan matures (although such a scenario may not incur a penalty, again depending on the loan terms).

• Security or collateral – This is only for secured loans. Conditions wherein the collateral’s ownership transfers to the creditor is outlined in the loan terms. Note that until the conditions are met the collateral remains to be the property of the borrower, although the borrower is constrained from selling the collateral until free of obligation from the creditor.