√ Definition of Credit, Functions, Elements, Types and Principles
Definition of Credit, Functions, Elements, Kinds and Principles - On this occasion About Knowledge will discuss about Credit. Which in this discussion explains the meaning of credit, credit functions, elements, types and principles briefly and clearly. To make it easier and clearer to understand, please refer to the following article.
Definition of Credit, Functions, Elements, Kinds and Principles
Credit has various dimensions, the word credit comes from the Greek, namely Credere, which means the truth of belief in daily practice.
Astiko in his book "Credit Management", explains the definition of credit is the ability to carry out something purchase or hold a loan with a promise, payment will be carried out at a predetermined time agreed.
In banking activities in our country, Basic Banking Law No. 7 of 1992 which states the criteria is the provision of money/bills that can be equated with that based on a loan agreement/agreement between the bank and another party which obliges the borrower to carry out the amount of interest as reward.
If we look at everyday life, borrowing efforts are usually in the form of written agreements under the hand or materially and as a safeguard. Both from the borrower who fulfills his obligations and submits guarantees that are material or intangible.
Credit Principles
In order for you to get credit, of course you have to go through the procedures set by the relevant bank/financial institution. Where in carrying out proper and healthy credit, namely with 6 C, including:
Character or Personality (Character)
Character, namely the character and willingness of the applicant to fulfill the promised obligations. Where this is a habit, nature, lifestyle, family circumstances and personality.
Capability
Capacity, namely the ability of the applicant to pay off obligations from business activities carried out or activities reviewed with credit from the bank. In the sense that to assess the extent to which the business results that can be obtained which can be paid off at a time that is in accordance with the credit agreement agreed upon and mutually agreed upon.
Capital (Capital)
Capital, namely the capital owned by prospective debtors when they apply for credit at the bank.
Guarantee (Collateral)
Collateral, namely in the form of goods handed over to the bank by the borrower or debtor as collateral for the credit given. In this case collateral is needed so that the credit does not get a fatal risk.
Economic Conditions (Condition of Economic)
Condition of Economics, namely conditions and situations, economic, social, cultural and so on that affect the state of the economy in a certain area time or for a certain period of time which is likely to affect the smooth running of the business of the acquiring company credit.
Barriers or Limits (Constrains)
Constraints in assessing debtors are influenced by obstacles that do not allow someone to do business somewhere.
Apart from the 6 C's above, there are also other credit principles, namely the 4 P's, which include:
Personality
Personality, namely the bank's rating system regarding the borrower's personality such as his hobbies, curriculum vitae, social standing ( association in society and how the community is about the borrower and so on), as well as family circumstances (wife / child ).
purpose
In this purpose, the bank in assessing the borrower is looking for data about the need for credit use or purpose. And also whether the function and purpose of using the credit are in accordance with the line of business of the bank's credit.
Payment
Payment which is to find out the extent of the debtor's ability to return a loan. Where this can be easily obtained from the calculation of prospects for smooth revenue and sales which are expected to be able to return in time in terms of the amount.
Prospects
Prospect, namely the future business expectations of the prospective debtor. It can be known through the development of the borrower's business over a certain period, by looking at the development of the debtor's trading business, economy, and earning power in the past and in the future.
Types of Credit
In order to distinguish credit, you can use factors and elements which are differentiated based on:
Nature of use of credit
Consumer Credit namely credit used for consumption purposes or money will be used up to meet their needs.
Productive Credit namely credit used to increase business, both production, trade and investment businesses.
credit requirements
Production exploits / Credits
Production credit, namely the number of credits needed by the company in increasing production as an increase in the quality of results and the quantity of production.
Trade Credit
Trade credit is used as a requirement in increasing the need for a traded item.
Investment Credit
Investment credit is used by entrepreneurs to increase capital, which credit is not intended for repairs or facilities related to this matter.
Credit according to how it is used
Free checking account credit
Where the debtor can receive all of his credit in the form of a checking account provided using a check and a loan checking account according to the amount of credit given which can be freely withdrawn during credit walk.
Limited checking account credit
This can happen where a customer withdraws money from an account with a system that has certain boundaries. Such as demand deposits and cartal money.
Credit checking account aflopend
Where withdrawals by customers are in full maximum credit at the time of the first withdrawal.
Revolving credits
Recolcing credit is a credit withdrawal system that is the same as a free newspaper for a period of 1 year with different usage.
Term Loans
Where the customer is free to use credit money for any purpose and the bank does not want to know about it.
Credit under Collateral
In this credit system there are generally 2, namely:
- Unsecured loans are known as blank loans.
- Secured Loans
Where this type is the most widely used by most banks in Indonesia. The guarantee can be in the form of a factory, BPKB, house, company or other valuables.
Credit Term
Short-term loans are loans with a term of 1 year.
Medium-term loans are loans with a term of 1-3 years.
Long-term loans are loans with a term of more than 3 years.
Credit Purpose
The purpose of credit is to cover a broad scope, including:
- Profitability aims to obtain results from credit in the form of profits that are sipped from interest collection.
- Safety is the security of performance or the facilities provided must be guaranteed so that profitability can be achieved without significant obstacles.
Credit Function
The function of credit is to distribute funds needed by the community. For this reason, the function of credit in economic life is as follows:
- Credit as a tool of economic stability.
- Credit as a bridge to increase national income.
- Credit can increase the usability of capital.
- Credit can increase the usefulness of an item.
Credit assistance is used by entrepreneurs to increase the volume of their production business. Increasing business is expected to increase profits. If the cumulative profit is developed again in the sense that the word is returned to the capital structure, then the increase will continue and as a result the income will continue to increase. (Sinungan M, Fundamentals and techniques of Credit Management, 1989)
Thus the explanation about Definition of Credit, Functions, Elements, Kinds and Principles, hopefully it can be useful and add to your insight.
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