What are cheque based loans

A cheque loan is a type of personal loan where you give post-dated cheques as repayment security. These cheques allow the lender to collect the loan amount in instalments on fixed future dates.

In today’s financial world, borrowers can choose from many loan options depending on their needs. Cheque-based loans are often seen as a quick way to arrange funds, especially for urgent expenses. If you are exploring fast credit, you can also check if you already have a pre-approved option. You can check your pre-approved loan offer with phone number and OTP → apply online in 5 minutes → receive funds within a day*, with no branch visit needed.

Before choosing any loan, it helps to understand how it works and what it means for your monthly budget. In this article, we explain what cheque-based loans are, how they work, their key features, and how they compare with unsecured personal loans. 

Cheque-based loans are a form of personal loan where the borrower provides a series of post-dated cheques to the lender at the time of approval. These cheques act as a repayment promise and are used by the lender to recover the loan amount over time.

In simple words, when you take a cheque-based loan, you write multiple cheques dated for future months. Each cheque usually covers one instalment, including the principal amount, interest, and any applicable charges. The lender deposits these cheques as per the agreed repayment schedule.

• Repayment through post-dated cheques: You provide the lender with a series of post-dated cheques, which are used to collect loan repayments on the scheduled dates.
• Quick processing: Cheque-based loans are often processed faster than traditional loans due to the simpler application and approval process.
• Less documentation: The documentation required is usually minimal compared to other loan types, focusing more on the cheques rather than extensive credit checks or asset evaluations.

1. Application submission
   You begin by submitting a loan application to a financial institution or lender offering cheque-based loans. This process involves filling out an application form and providing necessary documents such as proof of identity, income statements, and bank statements.
2. Providing post-dated cheques
   After the initial approval of your loan application, you are required to issue a set of post-dated cheques. These cheques are dated for future dates and represent the repayment of the loan amount, along with any applicable interest and charges. The number of cheques and their amounts depend on the loan term and total loan amount.
3. Loan disbursement
   Once the cheques are received, the lender disburses the loan amount to your account. You can then use these funds for your intended purpose, whether it’s for personal expenses, investments, or any other financial needs.
4. Repayment
   The lender deposits or encashes the cheques on the dates specified. Each cheque corresponds to a specific instalment of the loan, which includes both the principal repayment and the interest. If you fail to honour the cheques, it could result in penalties or damage to your credit profile.

Cheque-based loans may seem convenient, but unsecured personal loans often provide more flexibility and comfort. Here is how personal loans can be a better choice for many borrowers.

1. Broader uses
   Personal loans can be used for a wider range of purposes, including personal loan for home renovation, or vacation planning, whereas cheque-based loans are often used for more immediate or specific needs.
2. No post-dated cheques
   Personal loans do not require post-dated cheques for repayment. Instead, you make monthly payments through EMIs (Equated Monthly Instalments), which can be more manageable and flexible.
3. Better interest rates
   Personal loans interest rates are generally competitive compared to cheque-based loans. This can result in lower overall repayment amounts over the loan term.
4. More comprehensive features
   Personal loans often come with additional features such as flexible repayment terms, prepayment options, and loan insurance, which are not typically available with cheque-based loans.
5. Credit history consideration
   Personal loans usually involve a thorough credit assessment, which can help you secure better loan terms if you have a strong credit history. Cheque-based loans might not offer the same level of financial benefits. If you have a good credit profile, a personal loan may offer better terms and conditions. You can also check your eligibility for personal loan and plan accordingly. 

Cheque-based loans offer a straightforward and convenient way to access credit, particularly for those needing quick funds with minimal documentation. They work by using post-dated cheques as repayment security, providing a clear and structured repayment plan. The benefits of cheque-based financing include simplicity, faster processing, and fewer eligibility requirements. However, personal loan present a broader range of uses, better interest rates, and more comprehensive features that might make them a superior option depending on your financial goals.

When choosing between cheque-based loans and personal loans, consider your specific needs, financial situation, and long-term objectives. While cheque-based loans can be effective for immediate needs, personal loans offer greater flexibility and benefits for a wider array of financial requirements.

By evaluating these factors, you can make a more informed decision and select the loan option that best aligns with your financial strategy and personal circumstances.