Personal loan process: Is submitting a blank cheque mandatory? Find out

As personal loans become increasingly accessible in the country, many borrowers are often found questioning the importance and necessity of providing a blank cheque during the submission of loan applications.

Now some lenders still request for a crossed blank cheque as a security measure, still it is crucial to understand its implications, whether it is a mandatory requirement and available alternatives.

Is a blank cheque mandatory?

To put it simply, providing a blank cheque is not a mandatory requirement for applying for and obtaining a personal loan. The required documentation and its necessity largely depends on the respective lender and their policies.

Depending on individual policies and rules, traditional banks and certain Non-Banking Financial Companies (NBFC’s) might request for a blank cheque as a precautionary measure to secure loan repayment, especially in cases where digital repayment methods have failed or are not prudently available.

What are the risks associated with blank cheques?

Handing over a clean signed blank cheque carries several inherent risks. If misused, it can lead to unauthorised withdrawals or legal complications under the Negotiable Instruments Act. That is why to combat the same challenges borrowers are advised to:

• Mention ‘Account Payee Only’ to strictly prevent misuse.
• Key a record of the cheque number, a digital copy of the cheque and obtain a written acknowledgement from the lender explaining the objective and conditions for its use.
• Keep a tab and ensure that the cheque is utilised solely for its intended purpose and is returned upon the closure of loan.
• Set a validity date or clearly mention ‘not valid after’ a particular date on the cheque. This limits the timeframe within which the cheque can be presented for clearance.
• Avoid signing multiple cheques, even if requested to don’t agree to such proposals. As when multiple cheques are signed this increases the chances of financial crimes and frauds immensely.

What are some alternatives to blank cheques?

With consistent advancements in digital banking, many lenders now prefer electronic methods for loan repayments, such as:

• Electronic Clearing Service (ECS): Through ECS the borrower's account is automatically deducted for the loan repayment amount on a monthly basis.
• National Automated Clearing House (NACH): Through this centralised system interbank transactions are facilitated and streamlined and help in the repayment of loans.
• Standing Instructions: This particular system allows for pre-authorised directives for periodic payments of the loan thus ensuring no EMI is missed.

These methods help in enhancing security and reducing the need for physical cheques. That is why while repayment of loans these methods can be considered post proper consultation with your respective financial institution’s customer support team.

Legal perspective

The Supreme Court has held that even a cheque that is issued as security can attract action under Section 138 of the negotiable instrument act.

This will be applicable if the cheque was given against a legally enforceable debt. In Triumph International Finance Ltd v. State of Maharashtra (2007), the court clearly established that such cheques are not beyond the scope of dishonour proceedings.

Conclusion

Hence, some lenders may still request a blank cheque, it is not mandatory. Safer, digital repayment options are available, offering greater clarity and transparency, along with reduced risk for borrowers.

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