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Updated on March 1, 2023

A debtor is an individual or an entity that owes money to a person or an organisation. In terms of a business, a debtor is created when the organisation sells its goods or services to such an entity and is due to receive consideration for the same.

When a person secures a loan from a bank or any other financial institution, they are referred to as a borrower.

In either case, the amount due has to be repaid within the time limit specified at the time of taking the loan or as per the terms of the contract with the company.

Consequences of not paying back the debt

Any default by the debtors in repaying the amount due will result in a decrease in their creditworthiness. A business organisation can levy a penalty in the form of additional interest in the original amount due, take legal recourse to recover the amount due, etc. A default by the borrower to repay the loan taken will result in a decrease in credit score and have an adverse impact on their creditworthiness and their credit report.