Debtor

Loan agreements regulate the relationship between an individual or institution that lends money and the one who takes it. The party that provides money is called a lender, while the party that borrows it and undertakes to repay the loan is called a borrower. However, when the borrower has the requested amount, they become a debtor. From now on, they are obliged to return the money they borrowed. In most cases, contractual relations regarding loans include the payment of interest. Therefore, the borrower remains a debtor until they pay the interest, not just the principal debt.

Who Can Be a Debtor?

Any party who borrows money or other assets and undertakes to return it is called a debtor:

• An individual can receive a personal loan, mortgage, payday loan, etc.
• A bank can borrow money from the Federal Reserve and become a debtor.
• Universities may take loans to finance their scientific projects or other needs.
• Businesses can expand through loans.
• Even states become debtors when they borrow money from financial institutions, businesses, or other states.

Thus, anyone who borrows money from another person or institution to meet their needs is a debtor.

Debtor’s Obligation

The debtor’s most important obligation is to return the money to the creditor, following the conditions indicated in the loan agreement. For example, the lender may expect payment in installments over a specific period. On the contrary, the creditor and debtor may agree that the money will be returned in full, along with interest, by the time the debt matures.

Additional Conditions the Debtor Should Meet

The debtor should pay all debt payments within a strictly agreed time:

• If you miss regular payments or the final repayment of a debt, the lender may impose a late payment penalty.
• The same goes for paying off debt early. The debtor may want to save on interest and repay the entire amount of the debt earlier. However, in this case, the lender will not receive their reward in the form of interest for lending money. Therefore, if the debtor makes premature repayment of the debt, they may also be punished with fines.

What Happens If the Debtor Doesn’t Return the Money

There are different scenarios of the relationship between a creditor and a debtor in the case of non-repayment of a loan. Of course, the creditor will simply forgive the debtor, but it is extremely unlikely. The following actions of the creditor are more realistic:

• Reporting to the credit bureau about a bad debt;
• Assigning a debt to another creditor so that they attempt to collect money from the borrower;
• Filing a lawsuit;
• Referring to arbitration if this option is provided in the loan agreement.

In any case, failure to repay the debt will have negative consequences for the debtor. For example, they may pay extra money in penalties for late loan payments. Their credit rating will drop significantly, which means that in the future, they will hardly be able to take out a loan on favorable terms.