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Banks and non-banking financial institutions (NBFCs) may request blank cheques from personal loan applicants, although this is not required. A signed cheque without any further information, including the amount or the payee’s name, is called a blank cheque.

When requesting a personal loan, understanding the meaning of a blank cheque might assist in guaranteeing a seamless approval procedure and timely payout.

A blank cheque has no payee information or amount on it—just the account holder’s signature. Occasionally, the date is provided. Usually, the payee’s name and amount are entered later by the receiver.

Blank cheques’ role in personal loans

Although the regulations of the lender may stipulate differently, it is crucial to keep in mind that a blank cheque is not required for a personal loan.

For security reasons, a blank cheque is required for a personal loan. When applying for a loan, a blank cheque is not necessary.

The terms and conditions established by the bank or NBFC may apply to personal loans. On the due day, the lenders may fill out and cash a blank cheque.

To make sure they can recoup the loan balance in the event that the borrower is unable to make payments on schedule, lenders could request a blank cheque. The lender may use the cheque to deduct the outstanding balance from the borrower’s bank account in the case of a default.

If you take up a secured personal loan (like a gold loan), the lender may not need a blank cheque since they already have assets as security.

To persuade lenders that their money won’t be lost, a blank cheque is required. Several financial institutions still use cheques as a backup method in case payments are missing, even though digital banking operations have mostly supplanted cheques.

Although it is not required, many lenders would prefer a blank cheque as collateral. However, a blank cheque that has neither the payee’s name nor the amount on it might be exploited if it falls into the wrong hands.

To avoid fraudulent use, borrowers must make sure they have a duplicate or record of each cheque they have made to the bank or NBFC.

To avoid the cheque from bouncing, borrowers must maintain a sizeable sum in their accounts. If it does happen, the borrower may face legal action.

The majority of lenders now employ ECS or NACH auto-debit mandates, which enable EMIs to be deducted automatically from your bank account without a blank cheque.

Additionally, even if the lender insists on a blank cheque, the easiest way to avoid fraud is to fill it out with the lender’s name and amount before handing it to them.