Debtor is a Borrower, Here's the Complete Explanation
Debtor is a Borrower, Here's the Complete Explanation
In the business world, the term "debtor" is not unfamiliar. For those involved in banking, debtors are individuals easily found in banks due to borrowing and lending activities. If there are debtors, there are also creditors. So, what's the difference?
Often, Indonesian society is somewhat confused in understanding the definition of a debtor. However, in reality, a debtor is a party that borrows funds from another party.
To make it easier to understand, Brick will assist you in providing information about the definition of a debtor, the differences from a creditor, the criteria for becoming a debtor, and examples. Pay close attention.
Definition of Debtor
Referring to the Financial Services Authority (OJK) definition, a debtor is a party that receives a loan. In other words, a debtor is a party that owes a certain amount of funds to another party.
Meanwhile, a creditor is a party that lends funds to another party. Both debtors and creditors usually have agreements regarding deadlines or maturity dates that should be agreed upon together.
There are two types of loans to be aware of: secured loans and unsecured loans. If a debtor wants to easily obtain a loan from a creditor, it's better to provide collateral or security.
If a debtor fails to repay their debt to the creditor, the creditor has the right to seize or possess the collateral provided by the debtor. However, if the debtor is able to repay, the collateral will be returned from the creditor to the debtor.
However, it should be noted that debtors do not always borrow funds. There are other types of loans that can be provided besides funds, such as securities. In this case, the borrowing party will be referred to as the issuer.
Difference between Debtor and Creditor
As explained above, in borrowing and lending there are terms debtor and creditor. Referring to Law No. 37 of 2004 concerning bankruptcy, a creditor is a party that has receivables due to agreements and can claim those rights in court.
When looking at this regulation, it becomes clear that there are differences in roles in transactions and regulations. Creditors are parties receiving payments, while debtors are parties making payments.
Then, there are different rights and obligations between the two. If a debtor, they must make payment settlements according to the applicable agreement. Meanwhile, a creditor has the right to receive payments from the debtor.
Criteria for Becoming a Debtor
There are several criteria to be aware of to become a debtor:
- 1. Legal Age
The first requirement is that debtors must have reached adulthood. According to the applicable law, an individual's legal age is a minimum of 18 years. - Possession of Identification
When reaching the age of 18, what needs to be known is having identification. One of the mandatory identifications for Indonesian citizens is the Identity Card (KTP). This card is crucial when borrowing funds. Creditors need to know about the debtor's identity to monitor if there are unfulfilled obligations, such as debt repayment. - Being Eligible to be a Debtor
Eligibility depends on the creditor's policy in providing funds to the debtor. However, in the banking world, the criteria for debtors include honesty and discipline in repaying debts. This eligibility is usually analyzed so that debtors do not worry when providing funds. To ensure the creditor's ability, debtors usually also look at the collateral provided.
Types of Debtors
After recognizing the requirements for becoming a debtor, you need to know who is eligible to become a debtor:
- Borrowers from Official Banks
When looking at the purpose of borrowers borrowing funds, there are several underlying reasons. For example, borrowers will borrow funds for building a house. Some borrow funds as capital for business ventures. If related to business capital, the bank will evaluate the borrower's business. - Borrowers from Other Parties
The second type is conventional loans because they are not through official banks but to other parties or individuals. This type of loan is based on agreements between the two parties. For example, there are those who provide quick disbursement of funds with minimal requirements but high interest rates. Conversely, there are also those whose fund disbursement is slow, with sufficient requirements, but low resulting interest rates.
In the process of disbursing funds, creditors certainly need to undergo verification and credit scoring processes before disbursing loans to minimize defaults. Some creditors in the financial technology sector use Brick to connect with user data. Learn how Brick's solution for funding companies can assist creditors in their business operations.
