Borrower

Borrowing lets people and organisations spend money before they have it. A family takes out a mortgage to buy a home, a student borrows to pay for education, a company borrows to build a factory and a government borrows to fund public spending.

In return, the borrower accepts obligations. They must repay the amount borrowed, called the principal, plus interest, according to an agreed schedule. If a borrower takes a 20,000 loan at 7% a year, they will pay back more than 20,000 in total, because interest is charged on the outstanding balance.

Lenders judge borrowers on how likely they are to repay. They look at income, existing debts, credit history and sometimes collateral, such as a house or car that can be taken if payments stop. Borrowers seen as safer usually get lower interest rates.

A borrower who misses payments may face late fees, higher interest, damage to their credit score and, in serious cases, legal action or the loss of any asset pledged as security.

Note: Debtor means the same as borrower: someone who owes money. "Debtor" is often used in legal and accounting contexts.