In the financial world, debtors are one of the parties who have an important role. Debtors are individuals, companies or institutions that are given loans or borrow funds from financial institutions. The loans that have been given will be used for financing such as business or other personal needs.
If you are interested in exploring more about debtors, such as the rights and obligations of a debtor, read more in this article!
1. What is a Debtor?
1.1 Definition of Debtor
1.1.1 According to KBBI
According to the Big Indonesian Dictionary (KBBI), a debtor is a party who owes another party (creditor) with the obligation to repay the debt in accordance with the agreed agreement. Meanwhile, debt is defined as an obligation that must be paid by the person who owes it (debtor) to the person who owes it (creditor).
1.1.2 According to Law
The definition of debtor is regulated in Law no. 10 of 1998 concerning Amendments to Law Number 7 of 1992 concerning and Financial Services Authority Regulation Number 1/POJK.07/2013 concerning Protection of Financial Services Consumers. In its definition, a debtor is a customer who receives credit or financing facilities or a party who receives financial services from a financial services business actor. The term 'credit' itself is defined as the provision of funds by financial institutions to beneficiaries, both individuals and business entities, for consumptive, productive or investment purposes, with the obligation to return the funds and interest in accordance with the agreed agreement.
Based on these two definitions, it can be said that the debtor is the party who has the obligation to pay off the debt to the creditor in accordance with the agreed agreement.
2. Debtor's Rights and Obligations
2.1 Debtor Rights
2.1.1 Obtain clear and correct information
Debtors have the right to receive complete, accurate and easy to understand information regarding all aspects of the loans or credit facilities they receive. This information includes interest rates, additional fees, payment schedules, and the terms and conditions of credit agreements.
2.1.2 Obtain Fair and Transparent Decisions
The credit assessment and loan granting process must be carried out fairly and transparently. The debtor has the right to know the basis for every decision taken by the creditor, including the reasons for rejection of the credit application if it occurs.
2.1.3 Obtain Personal Data Protection
The debtor's personal data must be protected in accordance with applicable laws and regulations. Creditors are obliged to maintain the confidentiality of debtors' personal and financial information and must not misuse this data. This right includes protection against misuse of data, both by internal creditors and third parties.
2.1.4 File a Complaint and Get Protection
The debtor is the party who has the right to file a complaint if he feels aggrieved or treated unfairly by the creditor. Creditors are required to provide an easily accessible and effective mechanism for handling debtor complaints. In addition, debtors have the right to obtain legal protection in the event of a dispute or violation of rights.
2.1.5 Obtain a Fair and Reasonable Solution
In situations where debtors experience financial difficulties that hinder their ability to repay debts, they are entitled to a fair and reasonable solution from creditors. This could include debt restructuring, reducing interest rates, or extending repayment terms.
2.1.6 Obtain Financial Education and Literacy
Debtors have the right to receive adequate education and financial literacy to help them understand their rights and obligations as borrowers. Creditors should provide resources and educational programs that help debtors manage their finances well, understand basic credit concepts, and recognize the risks associated with loans.
2.2 Debtor Obligations
Apart from rights, debtors have several obligations, including:
2.2.1 Pay Debts on Time in Accordance with the Agreement
The main and most basic obligation of the debtor is to pay the debt on time according to the schedule agreed in the credit agreement. Timely payment shows the debtor's commitment and responsibility for his obligations.
2.2.2 Provide honest and complete information to creditors
Debtors are obliged to provide honest, accurate and complete information to creditors. This information includes personal data, financial condition and the purpose of using the loan. Honesty in conveying information is very important to ensure that creditors can assess the debtor's ability to fulfill payment obligations.
2.2.3 Utilize Loan Funds in Accordance with Agreed Purposes
The next obligation is to utilize loan funds in accordance with the objectives agreed in the credit agreement. Inappropriate use of loan funds may be considered a violation of the agreement and may affect the creditor's future decisions.
2.2.4 Provide Guarantees or Collateral If Necessary
In some cases, creditors may ask for collateral or collateral as a condition for providing a loan. The debtor has an obligation to provide this guarantee in accordance with the agreement. Collateral can be in the form of valuable assets such as property, vehicles or securities which can be used as security for creditors if the debtor fails to pay the debt.
2.2.5 Comply with the Terms and Conditions Stipulated in the Credit Agreement
The debtor must also comply with all other terms and conditions agreed upon in the credit agreement. This includes but is not limited to administrative obligations such as providing periodic financial reports, notifying creditors of significant changes in financial situations, and maintaining open communications with creditors.
2.2.6 Report Financial Difficulties Early
If debtors experience financial difficulties that hinder their ability to pay debts on time, they have an obligation to report this situation to creditors as soon as possible. This initial communication allows creditors and debtors to work together to find solutions that may include debt restructuring, payment rescheduling, or other options that can help resolve financial problems.
3. Debtor Category
3.1 Individual
Individual debtors are individuals who borrow money for personal needs, such as purchasing a house, car, or other consumer needs.
3.2 Company
Corporate debtors are business entities that borrow money for operational, expansion or investment purposes. Companies can be private companies, public companies, or small and medium enterprises (SMEs).
3.3 Government
Government debtors are central or regional governments that borrow funds to finance development projects, infrastructure or other needs.
4. Conditions for Becoming a Debtor
To become a trustworthy debtor and obtain credit facilities, there are several conditions that need to be met, known as the 5C principles, namely:
4.1 Characters
The debtor's character reflects their honesty and integrity in fulfilling payment obligations. This can be evaluated through credit history, reputation, and references. Creditors will evaluate credit history, reputation and references to find out the character of their prospective debtor.
4.2 Capacity
Debtors' capacity to repay debts is assessed based on their income, employment and financial stability. Creditors will evaluate the debtor's ability to meet debt payments consistently. The things that creditors will evaluate are the prospective debtor's income, employment, and financial stability.
4.3 Capital
The capital or assets owned by debtors show their ability to repay debts if an emergency situation occurs. This includes savings, investments and property owned.
4.4 Collaterals
Guarantee or collateral is an asset provided by the debtor as security for the creditor in the event of failure to pay. One type of creditor that facilitates loans with collateral is BFI Finance. BFI Finance offers various loan products with collateral, such as BPKB for motor vehicles or property. This loan provides a sense of security for creditors and allows debtors to obtain credit facilities with lower interest.
4.5 Conditions
The economic and industrial conditions in which the debtor is located also affect credit assessment. These factors include market conditions, job stability, and economic trends that may affect a debtor's ability to repay debts.
5. Classification of Debtor Levels
Debtors are classified based on their credit quality into five categories or "col" (collectibility). This classification is used by financial institutions to assess credit risk and determine the actions that need to be taken against debtors who have payment problems:
5.1 Col 1
Debtors with current status are debtors who always pay their debts on time according to the agreed payment schedule. They have no arrears and their credit record is clean of late payments. Financial institutions consider debtors in this category to have very low credit risk. Column 1 debtors can usually access additional credit facilities on more favorable terms because they are considered reliable customers.
5.2 Col 2
Debtors with special attention status are those who are starting to show signs of delays in payments, namely less than 90 days. Despite this, they still have the potential to improve their financial situation and resume payments on schedule. Financial institutions will monitor col 2 debtors more closely and may provide warnings or suggestions to improve their financial management.
5.3 Col 3
Debtors with substandard status experience delays in payments of between 90 and 120 days. At this stage, debtors show more serious difficulties in meeting their financial obligations. Financial institutions will usually start taking more concrete actions, such as contacting debtors to discuss solutions or renegotiating payment schedules.
5.4 Col 4
Debtors with doubtful status are those who experience delays in payment of between 120 and 180 days. At this point, the debtor's ability to repay the debt begins to be doubted, and it is likely that they will experience ongoing difficulties. The financial institution may consider further action such as restructuring the debt or initiating a more aggressive collection process.
5.5 Col 5
Debtors with bad status are those who experience delays in payments of more than 180 days and are deemed unable to pay their debts. At this stage, the financial institution may have lost hope for full recovery from the debtor. Actions taken may include confiscation of collateral, lawsuits, or reporting the debtor to a credit bureau.
6. Consequences if the Debtor is Unable to Pay the Debt
Not being able to pay debts has various serious consequences for the debtor, including:
6.1 Debt Collectors
The first consequence that the Debtor will experience is the arrival of debt collectors. In fact, creditors have the right to use debt collection services to collect payments. Usually, debt collectors use aggressive methods to pressure debtors to pay off their debts. This will stress the Debtor, especially if they feel humiliated by the collector.
6.2 Damage to Credit History
Inability to pay debts will damage the debtor's credit history recorded in the Central Credit Bureau (BIK) which can be accessed by other financial institutions. This will make it difficult for debtors to get loans in the future. With this recording, financial institutions will be more careful in providing loans to debtors and debtors will have a bad credit history.
6.3 Legal Action
Creditors have the right to take legal action if the debtor remains unable to pay the debt after the collection process. Creditors can sue debtors and confiscate debtor assets. This will result in huge financial losses and cause them to lose their homes or livelihoods.
6.4 Credit Score Reduction
The debtor's credit score will decrease significantly if the debt is not paid. A low credit score can hinder future access to credit and lead to increased borrowing costs. A low credit score indicates that the debtor is unable to manage finances and fulfill his financial obligations. A decrease in credit score can result in debtors being denied insurance, having difficulty getting work, and increasing loan interest rates.
6.5 Anxiety
Inability to pay debts often causes high stress and anxiety. Concerns about financial consequences and the impact on personal lives can affect a debtor's mental and emotional health. In some cases, debtors may even experience severe mental health disorders, such as panic attacks or clinical depression.
By knowing the categories and consequences of not paying debts, individuals and companies can be wiser in managing their debts and take steps to ensure that they fulfill their financial obligations properly.
BFI friends, if you are a debtor who needs funds for various purposes, you can apply for financing with one type of creditor that offers competitive interest, namely BFI Finance. BFI Finance is a financing company that provides loans guaranteed by motorbike BPKB, car BPKB, and house or shophouse certificates. With a vehicle disbursement value of up to 80%, BFI Finance can be your solution if you need funds for your needs. Come on, apply for your financing at BFI Finance!
