obligors

An obligor is a person or entity that has a legal obligation to perform or pay under a contract, instrument, or statutory duty. The term is used across law, finance, and business to identify the party bound to fulfill a duty, as distinct from the party to whom the duty is owed.

In finance, obligors include borrowers under loans, issuers of debt securities, and guarantors who have guaranteed another party’s obligations. The obligor must make payments of principal and interest or perform other duties in accordance with the instrument’s terms. Obligations may be secured by collateral or unsecured, and there can be co-obligors or multiple guarantees. The party that is owed performance or payment is the obligee or creditor.

When an obligor fails to meet the obligation, a default may occur, triggering remedies provided by contracts or law, such as acceleration of debt, late charges, enforcement actions, or bankruptcy proceedings. The status of an obligor can be affected by the instrument’s priority, any security interests, covenants, and governing law.

In practice, the term is common in securities, loan agreements, mortgage contracts, and guarantees. For example, a company that issues bonds is the obligor to the bondholders; a homeowner is the obligor on a mortgage; a guarantor becomes an obligor if the primary debtor defaults. The concept helps distinguish the party with the duty to perform from the party to whom performance is owed. See also obligee.