Whether it’s Aunt Sally lending you money for your destination wedding, or your credit card issuer offering you a $10,000 limit, if you borrowed money – or were extended a line of credit – then you have an arrangement with a creditor. Even though you might not regard your dear Aunt Sally as a creditor, she is; she becomes one when she loaned you money that is not a gift, and that you are expected to pay back.
What Is a Creditor
A creditor is an individual person, company, financial institution or other entity that lends money or extends credit to someone. This creditor can be someone you know, such as a family member or close friend, but people often use it to refer to banks or other financial institutions.
What Is a Debtor
Debtors, like creditors, can be either an individual or a company. However, the debtor is the one borrowing the money, or being extended the line of credit. The term debtor is generally referred to as a borrower when the creditor is a financial institution that is loaning money. If the debt stems from bonds, for example, then the debtor is known as an issuer.
Types of Creditors
There are two types of creditors: personal and real. Real creditors are companies and financial institutions that lend you money or extend a line of credit to you – that you are expected to pay back – usually with interest. Examples of real creditors are banks, mortgage lenders and credit card companies. When you are in debt to a real creditor, you typically have to sign legally binding contracts and fill out paperwork stating that you will repay the loan or balance in the manner and terms stated in the contract. Real creditors base their decision of whether or not to extend you credit upon several factors, including your credit and employment history as well as income. If you fail to repay your debt, there can be ramifications for not doing so, including seizure of assets, garnishment of wages and negative lines on your credit report.
On the other hand, personal creditors usually do not require all of the credit checks, contracts and paperwork that real creditors do – because they know you personally. But this is not always the case, Aunt Sally may require you to sign a promissory note or other document stating that you will repay the money by a specific date. She could also decide to charge interest or impose other rules and stipulations that must be adhered to. Just because a personal creditor may not be a financial institution, if you borrow any money with the full knowledge that the person lending it to you expects it back, then you are obligated to pay it back.
If you are a debtor, and find yourself behind in payments, you need to know that you have rights and recourse. Owing creditors money does not give them the right to harass you in order to collect the debt. The Fair Debt Collection Practices Act, or FDCPA, is enforced by the Federal Trade Commission and details how creditors can and cannot attempt to collect on a debt. For instance, creditors cannot contact you before 8 a.m. or after 9 p.m. Creditors also cannot contact you at work, if you have expressed either verbally or in writing not to do so. Although creditors can contact third parties to find your contact information, they must be discreet and cannot let anyone know that you owe money. In the event you are being harassed by an abusive creditor, you have the law on your side.
According to the FTC, if you have been harassed, or you find that the creditor has otherwise violated the FDCPA, then you have the right to sue for damages suffered from the harassment and illegal practices. To report problems with creditors, contact your state Attorney General's Office, the FTC or the Consumer Financial Protection Bureau.