A security check is essential when applying for a loan or some financial funding in the UAE. You must understand the basic functioning of the security checks before getting a mortgage loan to avoid misunderstanding later.
Understanding With Example
Suppose you take a loan of amount AED 100,000 for a four-year tenure at a fixed interest rate of 4%. In that case, you will owe a total of AED 116,000 to the bank. On the other hand, you will pay back this loan in installments. So, if you fail to make payments at some point, the bank will use your security checks to cover the interest income and expenses. The bank will encash your security check if you fail to make the loan payments.
Previously in the UAE, it was common for banks to ask for blank security checks from the borrowers prior to granting any financing. Consequently, the banks could write any amount they wished on the signed checks. This emerged the unpredictability of how much customers will be accountable for in the event of a default. This misunderstanding was cleared by the Central Bank of the UAE when they announced that customers wouldn't have to provide blank security checks to the banks anymore.
When granting various forms of credit facility like car or personal loans, credit facilities, or mortgages, every UAE-based bank asks for security checks.
What To Provide Then?
You have to provide an un-dated check to the bank that can cover the total credit amount at a minimum. A security check is required by most banks in UAE when they authorize a credit card or a loan. The bank uses the security checks when the borrower or credit card holder doesn't make their debt payments. You can consider it a type of bank guarantee request against your borrowed money or credit.
You must know that a security check is a routine check issued by any regular check holder. The date on such checks is left blank, and they must be signed and issued to the bank.
What Benefit Do Banks Have?
Suppose you fail to make the debt payments for quite some time (commonly three months). In that case, the bank will first give you some friendly reminders, and if you don't respond, they will use the security checks to cover their income.
Security checks benefit the banks when their credit or loan holder fails to make installment payments. They can do so by depositing the security check for encashment. The check will get exchanged for cash only if the loan holder's account has money. If not, the check will get bounced or dishonored, and further actions can be taken against them.
In the past, the outstanding loan balance was taken into consideration when banks needed to enter the check amount. However, with the latest guidelines from the Central Bank of UAE, security checks should only have the date column blank, and the loan and interest amount must be written on the check.
With several financing services in Dubai, it has become easy, hassle-free, and convenient for people to get a loan. With this precise guide on security checks, you can smoothly proceed with your documentation requirements while applying for a loan or credit card in Dubai.