What is a creditor?

A creditor is defined as an individual or institution to whom money is owed. This definition is central to understanding the roles within financial transactions. Creditors can be businesses, financial institutions, or individuals who extend credit or provide loans to others. When the borrower receives funds, a debt is created, and the creditor has the right to be repaid in accordance with the terms agreed upon, which typically includes interest as a cost of borrowing.

Recognizing that creditors are owed money is crucial for anyone studying financial planning and management, as it illustrates the flow of money within the economy and the obligations that arise from borrowing. Understanding this concept lays the groundwork for appreciating how loans, credit terms, and financial commitments influence both personal and business financial health.