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If you have ever taken either a Loan or a Credit Card from any of the banks in UAE, you would know that almost all the banks would require a security cheque from your end in order to facilitate your request. Some UAE residents still are hesitant to sign this security cheque, so we thought it would be better to write this post and clarify what exactly is a security cheque in UAE and how it can be used.
Security cheques are basically a security for banks that ensures them that they will get their loan amount bank even if you go bankrupt or default. So e.g. you take a loan from a bank of 50,000 AED at a flat interest rate of 4% that makes the total payable amount to be 58,000 AED. And since you will be making the payments as EMI (Easy Monthly Installments), banks want to be sure of getting their installment payments even if you are unable to pay for it. So basically the security cheques only come in to play when you stop making your loan or credit card repayments, as than bank has the right to cash-in the security cheque.
Until few years back, Banks in UAE used to ask their customers for blank security cheque in order to offer them any sort of financing facility. A blank security cheque means that the bank can write-in any amount they want on the cheque in case of default. But then UAE Central Bank gave its clear direction to banks that they should not force the customers to give them blank cheque, in fact if the bank forces the customers to do so, customers have the right to contest it by law.
So when exactly can a bank cash-in your security cheque? Bank can do that when your loan is considered a “Non-Performing Loan”, which happens usually when you miss 3 monthly installments of your loan (It may vary from bank to bank). So the only thing you have to worry about is to make sure that you are paying your installments in full and on time.