Why do banks need post dated cheques for loans?

cnu · Post by **cnu** » Wed Nov 14, 2007 7:45 pm

Has anyone being asked to provide posted dated cheques to process/approve a home loan? If so what has been your experience with this?

Froogle · Post by **Froogle** » Wed Nov 14, 2007 7:53 pm

That is a normal practice. For my first mortgage I had supplied yearly post dated checks. Lately with another mortgage I had supplied first years post dated checks and from then the online transfer which is scheduled by outside source.

Checks get deposited according to the date on the check. Funds should be available on that day though the clearing happens 1 or 2 days later. Talk to the relationship manager for electronic transfer if you are interested. Most probably you will have to write checks for at least couple of months. I guess the post dated checks is kind of assurance that you will pay. Also it should state in your agreement with the mortgage company. Writing checks is pain other than it is normal business practice.

DosaiLvr · Post by **DosaiLvr** » Wed Nov 14, 2007 8:01 pm

Helps the banks to sue defaulters under the Negotiable Instruments Act Sec. 138

cnu · Post by **cnu** » Wed Nov 14, 2007 8:34 pm

Thanks Lads,

More on this...

Say, If I have taken a loan for 30Lakhs, I had to provide 3 cheques of 10 Lakhs each, Which I did, now say I payed of my first 10 lakhs [meaning: left to pay 20 lakhs more] will I get back my first cheque?

I could not speak to the bank as you may/may not know once their work is over, they just show you their back. Unfortunately asking bank is not the option for me.

So my question is: If I pay 10 lakhs [for 30 lakhs loan], will I get back atleast one of my 3 cheques? technically the bank should be holding only to 2 * 10 lakhs cheques isnt it? Or am I missing the point?

cnu · Post by **cnu** » Wed Nov 14, 2007 8:38 pm

Is this the norm even in Govt banks in India?

I did not give any such cheques in UK

Ace Novice · Post by **Ace Novice** » Wed Nov 14, 2007 9:01 pm

cnu;57602....Say, If I have taken a loan for 30Lakhs, I had to provide 3 cheques of 10 Lakhs each, Which I did, now say I payed of my first 10 lakhs [meaning: left to pay 20 lakhs more] will I get back my first cheque?.....[/quote]

There isn't any thing in the contract about prepayment ? Make sure one of the checks is canceled or returned to prevent inadvertent encashment at a later stage.

cnu · Post by **cnu** » Wed Nov 14, 2007 9:09 pm

Unfortunately there is no mention about these cheques in the contract :(

Froogle · Post by **Froogle** » Wed Nov 14, 2007 9:30 pm

cnu;57602Thanks Lads,

More on this...

Say, If I have taken a loan for 30Lakhs, I had to provide 3 cheques of 10 Lakhs each, Which I did, now say I payed of my first 10 lakhs [meaning: left to pay 20 lakhs more] will I get back my first cheque?

I could not speak to the bank as you may/may not know once their work is over, they just show you their back. Unfortunately asking bank is not the option for me.

So my question is: If I pay 10 lakhs [for 30 lakhs loan], will I get back atleast one of my 3 cheques? technically the bank should be holding only to 2 * 10 lakhs cheques isnt it? Or am I missing the point?

It is not clear how you paid 10L. If the mortgage company is asking all the loan amount as post dated checks (3, 10L each) that is weired. Your best bet is talk to the relationship manager and ask to return checks.

cyberabadi · Post by **cyberabadi** » Thu Nov 15, 2007 12:26 am

Cnu,

I don't understand why the bank would want checks for the whole amount (3*10L in this case). I had a similar loan few years back from HDFC and am still in the repayment mode. From what I remember they have taken 48checks for the monthly installments and have been depositing them. Of course, I would have to give them additional checks soon as I wouldn't be prepaying that.

The house/apt that you have purchased will be mortgaged to them isn't it?

Bobus · Post by **Bobus** » Thu Nov 15, 2007 12:46 am

DosaiLvr;57586Helps the banks to sue defaulters under the Negotiable Instruments Act Sec. 138[/quote]

Have not checked the relevant section, and what follows is based on my recollection of an amendment to the law that was proposed and passed about 2 decades ago:

If a cheque bounces for lack of adequate funds (not for other technical reasons), and the cheque is toward repayment of a debt (not say a gift), then the issuer can be prosecuted. Very few people were booked initially, but later there have been some cases where people have been booked. So collection of PDCs acts as a psychological deterrent.

However there is a more practical reason for a bank or finance company to insist on PDCs. Postal system is not that great in India, and cheques may arrive late. When a bank or finance company collects PDCs, it avoid the above problems. It also helps them in their cash flow planning. Some cheques still bounce and when that information comes from the bank, the borrower is contacted and asked to make up quickly and pay extra fee - prosecution is a last resort.

I had taken a loan from ICICI bank for acquiring a flat. I have (and had) an ICICI account and authorized electronic debits - so I did not have to issue PDCs.

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Added Later

In the event of prepayment, one can ask the bank to return the extra PDCs - else there is a possibility that the extra PDCs may get deposited - then one has to ask the bank for a refund. Two different arms of a bank may not always work in proper coordination. Operations (housekeeping) typically lags behind aggressive marketing and business growth.

I had prepaid my ICICI bank loan and the EMI was greater than the outstanding balance toward the end. Yet the EMI got debited, the loan balance became negative, and the bank later issued a credit for the excess debit. I did not even have to ask.