Surely you are no stranger to using the credit system. The simple credit system is owed to other parties and the method of payment is made in installments over a certain period of time.
The credit system is usually used in large transactions such as purchasing property or borrowing business capital.
Despite needing it, debt is bound to weigh heavily on your mind. Especially if the nominal is large and it's hard to pay for it.
It is possible that the debt will then burden your balance sheet, accumulate, and never be paid off. You may be able to negotiate to increase the term of debt repayment if borrowing from individuals.
However, of course the unpaid debt will be a problem if you borrow at the bank. The reason is because the interest paid is increasing and the nominal amount you have to pay is even higher.
The condition when a customer is no longer able to pay or repay a loan is called bad credit.
This condition can in fact cause many problems, ranging from difficulties in obtaining credit approval to being blacklisted by the bank.
Definition of Bad Credit
Bad credit is generally a condition when the borrower or debtor is no longer able to continue paying or repaying debt.
This can happen because the borrower or debtor does not have sufficient funds, experiences bankruptcy, is absent from paying, and so on.
If the borrower delays payment longer, the loan interest set by the bank will increase in amount. The total funds to be paid by the debtor will also increase.
The larger the loan, the more it will burden the debtor until finally the debtor is unable to repay or pay it off.
Various Levels of Bad Credit
Based on the debtor's ability to pay off installments, the level of credit smoothness is divided into the following four groups.
1. Current credit
Credit loans are considered current if the debtor is able to pay installments, principal installments, and loan interest smoothly and has no arrears.
Even though there are arrears, the debtor is able to pay them before the next installment period expires.
2. Credit is not current
A credit loan is said to be non-current if the debtor has arrears in principal installments that have exceeded one installment period, but have not exceeded two installment periods.
In addition, interest payments are two months in arrears, but have not exceeded three months.
3. Doubtful credit
Furthermore, doubtful credit is a condition if the loan can still be saved and there is collateral whose value is at least 75% of the debt price.
Even though the debtor is unable to pay the principal or interest installments, there is still collateral whose price is at least 100% equivalent to the debt.
4. Bad credit
Bad credit is a condition when after 18 months have passed since the credit is classified as doubtful, the debtor has no attempt to repay. In fact, the debtor also does not have any collateral.
Impact of Bad Credit
Bad credit can cause loan interest to increase, so that the nominal amount you have to pay also increases. But besides this, it turns out that bad credit also has an impact on your good name and closes the opportunity to get further credit.
The following are some of the impacts of bad credit on customers.
1. Before a bank gives a loan, the bank will check the customer's history. If a prospective debtor has a credit record that is substandard, doubtful, or even bad, it will be considered high risk and difficult to get a loan.
2. Prospective debtors who have substandard, doubtful, and even bad credit records will be given higher interest. Conversely, prospective debtors with smooth credit history will find it easier to get loans with lower interest.
3. Prospective debtors who have a poor credit record will have difficulty applying for a mortgage. If the prospective debtor has experienced problems with paying for a home loan, the debtor will not pass Checking if he wants to apply for another loan.
Buying a house with a mortgage is often chosen because it is considered to help ease someone's efforts in owning a house.
However, before applying for a mortgage, you should first identify the types, requirements, and how to calculate mortgage interest.
How to Overcome Bad Credit
If in a forced and unavoidable situation you are exposed to bad credit, the first thing to do is to remain calm and be cooperative with the relevant bank. Avoiding the bank will only add to the problem and make your condition worse.
Go to the bank and state your condition honestly and explain why you are in a bad credit position. Ask for the cooperation of the bank to help solve your bad credit problems by restructuring.
The following are three types of restructuring that can be given to debtors who are in a bad credit condition.
This method is done by adjusting the tenor of your loan so that you can repay credit repayments. The bank will extend the loan tenor from debtors who experience bad credit.
This is done so that the installments that must be paid can be lighter. The extension of the tenor is also adjusted to the ability of the debtor to pay.
2. Terms of return (restructuring)
The second way is by restructuring or changing the terms of the loan, which includes changing the payment schedule, term, and other requirements.
This return requirement can be made on the condition that it does not change the maximum credit limit.
The third way is by realignment, namely the bank's efforts to change credit conditions to ease the responsibilities of debtors involved in bad credit.
This is done by adding credit facilities, converting arrears into new credit principals, to rescheduling and returning requirements.