Have you ever wondered what happens to an asset or collateral that is pledged as security when someone fails to repay their loan obligations? In the world of finance, collateral is an asset pledged to the lender. If the borrower defaults, the lender (creditor) has the right to execute the asset and then sell it through an auction.
This process of selling collateralized assets is known as a collateral auction. It is carried out to cover the remaining unpaid loan balance by the debtor. Curious to learn more? Let’s dive into the explanation below!
What is a Collateral Auction?
A collateral auction is the process of selling pledged assets to a lender through an auction mechanism. In many cases, collateral auctions are carried out through the State Assets and Auction Service Office (KPKNL).
The term itself consists of two words: auction—which means selling goods openly to the public where the price increases until the highest bidder wins, and collateral—referring to property or other assets pledged when taking a loan.
Typically, prospective buyers interested in joining an auction must first deposit a guarantee fee. This guarantee usually ranges between 20–50% of the reserve price and must be paid no later than one day before the auction starts.
Difference Between Execution Auction and Non-Execution Auction
You may have heard the terms execution auction and non-execution auction. Both involve selling assets through auctions, but they differ in concept.
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Execution Auction: This is the sale of assets based on a court ruling due to a debtor’s failure to meet obligations to a creditor. For example, when a bank or financial institution sells collateralized assets because the debtor cannot repay their loan.
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Non-Execution Auction: This type of auction is voluntary and not based on a court decision. It is usually conducted by companies, individuals, businesses, or government institutions that want to sell goods through an auction.
Based on these definitions, a collateral auction falls under the execution auction category, as it is carried out to settle outstanding debts by selling pledged assets.
Regulations on Collateral Execution in Finance Companies
The execution of collateral by finance companies in the event of default follows the provisions of Article 65 of POJK 22/2023.
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Article 65 (1) states that if a consumer cannot fulfill their obligations within a specified period after the repossession or takeover of collateral (Article 64(4)), financial service providers (PUJK) must sell the collateral through:
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Public auction, where proceeds are used to settle the outstanding debt; and/or
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Private sale based on mutual agreement if a higher price can be obtained that benefits both parties.
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In principle, repossession or takeover of collateral must meet certain requirements: the debtor must be proven in default, has been given prior warning letters, and the finance company holds the proper collateral certificates (mortgage, fiduciary, or hypothec).
When executing collateral, whether through public auction or private sale, the finance company must clearly explain to the debtor the outstanding principal, accrued interest, penalties, execution costs, and sales mechanism.
Collateral Auction Procedure
The collateral auction procedure involves two main stages: pre-auction and auction execution.
1. Pre-Auction
At this stage, the bank or lender submits documents to the Head of KPKNL or through a private auction house. Once all requirements are met, KPKNL will issue a written auction schedule.
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If the collateral is immovable property (land, houses), there must be two announcements with a 15-day interval. The first is posted publicly, while the second is published in a daily newspaper 14 days before the auction.
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If the collateral is movable property (motorcycles, cars, machinery), one announcement in a newspaper is required, at least six days before the auction.
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If the collateral is perishable or cannot be stored long, the announcement may be made up to two days before the auction.
2. Auction Execution
The auction is carried out at the KPKNL office based on the determined schedule, following the principles of fairness, transparency, legal certainty, efficiency, and accountability.
Participants must register before joining the auction. During the process, bids can be submitted in two ways:
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Closed bidding: Each participant submits an offer without knowing others’ bids.
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Open bidding: All participants can see and compete transparently on bid prices.
The highest bidder is declared the winner and must pay an auction fee according to Government Regulation No.62/2020 on Non-Tax State Revenue Tariffs, which ranges from 2%–3% depending on the type of asset.
That’s a complete overview of collateral auctions—from definition, regulations, to detailed procedures. By understanding the process, you can better anticipate risks and take the right steps in managing loan obligations.
If you are interested in purchasing auctioned assets from BFI Finance, you can visit:
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https://beta.grosirmobil.id/ — for cars and motorcycles
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Property Auction Platform — for property assets
These are intermediary platforms to view BFI Finance auction assets before transacting with KPKNL.
On the other hand, if you are currently seeking financing services, it’s important to choose a safe and trusted financial institution. One option to consider is applying for financing through an official institution such as BFI Finance.
With just Motor BPKB, Car BPKB, or House/Shop certificates as collateral, you can obtain loans without deductions, long tenors, and competitive interest rates.
With over 40 years of experience, BFI Finance is a reliable partner in helping you achieve your financial goals. Moreover, BFI Finance is licensed and supervised by the Financial Services Authority (OJK), ensuring security and trust.
Apply for your loan now and fulfill your financial needs, because #SelaluAdaJalan with BFI Finance.
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