What is the difference between creditors and lenders

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What Is a Creditor? Key Takeaways A creditor is an entity that extends credit, giving another entity permission to borrow money to be repaid in the future. A business that provides supplies or services and does not demand immediate payment is also a creditor, as the client owes the business money for services already rendered. Personal creditors who cannot recoup a debt may be able to claim it as a short-term capital gains loss on their income tax return.

Creditors such as banks can repossess collateral like homes and cars on secured loans, and they can take debtors to court over unsecured debts.

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This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms What Is a Debtor?

A debtor is a company or individual who owes money to a lender and is also often referred to as a borrower. Read about laws that protect debtors. Proof of Claim A proof of claim is a form submitted by a creditor in order to receive money from a debtor who has filed for bankruptcy.

What Does Unsecured Mean in Loans? Unsecured refers to a loan or equity interest that is given without requiring a lien against collateral of equal or higher value.

Debt Assignment Definition Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party—often to a debt collector. Understanding Unsecured Creditors An unsecured creditor is an individual or institution that lends money without obtaining assets as collateral, leading to a higher risk for the creditor. Peer-to-peer lenders also often fall into the online lender category, but rather than a central lender behind the online platform, there are many individuals who provide small loans amongst themselves.

These loans are also considered high risk because each lender has very little resources to lean back on. Crowdfunding is a lender in my definition, but some dispute this classification. Similar to peer-to-peer lending, crowdfunding works by allowing individuals to invest in others.

The difference is that crowdfunding provides money to individuals so they can launch a product or service, not for personal uses. Additionally, rather than receiving interest on the money they provide, crowdfunders usually get a major discount on the product once it launches. In the case of companies, these entities usually become shareholders in exchange for money, and thus retain rights to dividends. We call them investors.

Examples of creditors include the same entities as lenders — banks, credit unions, online lenders, peer-to-peer lenders, and crowdfunders. Remember, creditors and lenders are just words we use in two different situations to describe the same underlying idea: a supplier of money that expects interest payments in return.

Creditor is the word we employ once the lender provides the loan and the relationship begins. This means that these example lenders are only considered creditors in the context of their relationship with a specific borrower. Creditors fall into two types: lenders and traders. The reason for this is that they are the most publicized and well known.

Trade creditors are a special kind of creditor that only exist in business-to-business relationships. They defy our original conception of creditors as entities that provide money and expect interest in return. Trade creditors are suppliers that provide goods or services to a company but have not yet been paid.

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Asked 6 years, 10 months ago. Active 6 years, 10 months ago. Viewed 11k times. Improve this question. Homework questions are allowed on the site, as long as they are useful to others.

This one, maybe not so much. OP: it's the same thing — codekiddy. Add a comment.