When it comes to borrowing money, there are often various parties involved in the loan agreement. One such party is the obligor, also known as the borrower. In this article, we will define what an obligor is and its role in a loan agreement.
Definition of Obligor
An obligor is an individual or entity that owes a debt or obligation to another party. In the context of a loan agreement, the obligor is the borrower who is responsible for repaying the loan amount plus interest to the lender.
Obligor vs. Guarantor
It is important to note that an obligor is not the same as a guarantor. A guarantor is a third party who guarantees the loan repayment on behalf of the borrower. In other words, if the borrower defaults on the loan, the lender can seek repayment from the guarantor.
The Role of Obligor in a Loan Agreement
The obligor plays a significant role in a loan agreement, as they are responsible for repaying the loan amount plus interest to the lender. The loan agreement outlines the terms and conditions of the loan, including the repayment schedule, interest rate, and any associated fees.
The obligor is required to make timely payments as outlined in the loan agreement. Failure to do so can result in default, which may have serious consequences such as legal action and damage to the obligor`s credit score.
In some cases, the obligor may be required to provide collateral, such as a house or car, to secure the loan. This means that if the obligor defaults on the loan, the lender can seize the collateral as repayment.
Conclusion
In summary, an obligor is the borrower in a loan agreement who is responsible for repaying the loan amount plus interest to the lender. They play a crucial role in the loan agreement and are required to make timely payments as outlined in the agreement. Understanding the role of an obligor is important for borrowers when considering taking out a loan and fulfilling their obligations as a borrower.