What are creditors in accounting?

Regarding accounting, creditors must be considered when determining the amount of money and interest an individual or company has outstanding in the form of debts and other financial obligations to these entities. Creditors offer two main types of credit, these are:

• Secured credit. This form of credit leverages the company or individual's assets against the debt. For a company, this can be any form of an asset, and for individuals, it can be pieces of property, such as a car or a house.

  When a company or individual can use their assets to leverage a loan from a creditor, it often provides them with lower interest rates.

• Unsecured credit. Unsecured credit is a form that does not include leveraging assets against the debt. These lines of credit normally have higher interest rates and lower borrowing limits because of the lack of assets.

  Credit cards represent a common form of unsecured credit. However, credit cards can have higher credit limits if you remain in good standing.

Now we will have a look at the different types of creditors. There are four main types of creditors, including the following:

• Personal creditor. Personal creditors are informal creditors. These are normally individuals who loan funds to family members or friends. They are called personal creditors because the borrower knows them personally, and the transaction is normally done without much formality.

  For example, most personal creditors do not draw up contracts or require interest from borrowers.

• Real creditor. Banks and financial institutions are considered real creditors. Credit card companies also fall into this category. These entities normally have binding contracts that might grant them access to a borrower's assets if the loan can not be repaid.

• Secured creditors. This form of creditor leverages the company or individual's assets against the debt. For a company, this can be any form of an asset, and for individuals, it can be pieces of property, such as a car or a house.

  When a company or individual can use their assets to leverage a loan from a secured creditor, it often provides them with lower interest rates.

• Unsecured creditor. Unsecured creditors do not include the leveraging of assets against the debt. They normally offer lines of credit with higher interest rates and lower borrowing limits because of the lack of assets.