A debtor is a person or entity, typically a business, that owes money to another party, such as a lender or supplier, and is obligated to repay the debt according to agreed-upon terms.
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Last Updated: February 10, 2026
The definition of debtor is a borrower who is liable to pay a defined sum to a creditor. Creditors are typically banks or suppliers of goods. A borrower might be either an individual seeking a personal loan to buy a home or a company looking for credit to expand its product line. The modern definition of a debtor typically requires a debt to be repaid with interest.
This article explains the basics of a debtor, including how they compare to creditors and real-world examples.
Creditors are the opposite of debtors. When debtors need money, creditors are often more than happy to lend it. Creditors, like debtors, can be either a person or a company. Family or friends can even be considered creditors if they’ve lent money to a loved one. Typical, or “real” creditors are banks or finance companies. These types of creditors typically have a credit or financing agreement in place. Creditors make money by charging interest.
Naturally, one of the biggest disadvantages of being a debtor is paying interest. How big a disadvantage that proves to be will depend on the borrower’s credit history, the type of loan, current interest rates, and other factors.
To fully understand the definition of debtor, it’s helpful to think through some examples. Consider an entrepreneur who takes out a business loan to open her first used car lot. She works with a bank to finance a property and obtain her first shipment of inventory. Her loan is for $500,000. As soon as she signs the loan agreement, she’s a debtor. She’ll stop being a debtor when she finishes paying off the $500,000 balance and its accompanying interest payments.
While the entrepreneur is the debtor in this scenario, the bank is the creditor. The entrepreneur’s inventory and used car lot serve as the collateral for her loan; if she fails to make a payment, the bank could take possession of those properties to help safeguard their investment.
Debtors are individuals or businesses that owe money, whether to banks or other individuals. Creditors may have other recourse to collect a debt if there’s collateral, such as repossession, or they can take debtors to court.
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If someone goes to the grocery store and pays in cash for their bananas at the register, they’re not a debtor to the grocery store. However, if that person paid using their credit card, they might be in debt to their credit card company or bank. Customers are debtors if they have a loan or owe a business for goods purchased but not paid for. Customers of companies that provide goods or services are considered debtors if they’re allowed to make payments at a later date.
For a creditor, money owed to them is considered an asset, depending on what accounting methods they use. If an entrepreneur is a creditor and they have questions about how to account for debts outstanding, it’s wise to speak with a trusted accounting professional.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
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