I met Abiola, a prospective client yesterday. He had applied for a personal loan through our online platform and all things being equal, he qualified for our review, approval and disbursement, but on further enquiry he was disqualified.

Abiola is a paid employee and his monthly salary is domiciled regularly by his employer, ABC & Co. in his personal savings account. Despite meeting all conditions precedent, Abiola still got disqualified. Abiola couldn’t provide repayment cheques from his salary account, which is a savings account, to support his repayment plan as it relates to his salary pay day. There was a sudden and dramatic turn of event as we were unable to proceed and of course the application was closed. He was very disappointed and sad as he needed the funds urgently, but I could not help.

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We must understand that financial institutions rely more on documentations for all financial transactions, than physical sighting and inquiries. Hence every promise to honor obligation(s) requires substantial support by some form of documentation(s). Just because Abiola, had been receiving his monthly salaries in a personal savings account, does not make his verbal promises sufficient and acceptable for the repayment on an obligation, the promises(s) must be supported using cheque(s), which is a generally acceptable instrument that is only issued on current accounts but not limited to payments across the counter, it is acceptable through the clearing house processes across various banks; this becomes impossible with a savings account, even though you have cheques(s) in some cases, but they cannot be presented through clearing.

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FEATURES OF CURRENT (CHECKING) ACCOUNTS:
1. The current account is the simplest and most basic account needed for day-to-day transactions: transactions are relative to business dealings. In the credit-union world, Current accounts are referred to as share drafts. There are usually no limitations on the number of times you can make a deposit or withdrawal in this account type. They're used mainly for transaction handling. With a checking account, you make deposits into the account, either manually by visiting the bank or electronically by setting up direct deposits, with an employer, perhaps.
2. Checking accounts usually don't yield any interest on the balance. However, that's changing nowadays with many internet banks offering interest yields on their checking accounts. Generally, the balance you carry in a checking account will not earn much interest, or even no interest, while your money in a savings account will earn a higher rate of interest.
3. Checking accounts can be categorized as either personal or business. There can be a lot of differences between these two categories depending on the financial institution, but their underlying function is the same. The bank gives you a book of numbered checks imprinted with your account number and name. You write checks to pay bills or to make purchases and the bank debits the funds from your account.
As a result, some personal checking accounts don't require a monthly minimum balance, don't charge a monthly fee, provide a free ATM/debit card and even offer free checks.
Business checking accounts, however, may not have as many freebies.
ESSENCE OF CURRENT ACCOUNT FOR LOAN TRANSACTIONS

1. They're used mainly for transaction handling. There are usually no limitations on the number of times you can make a deposit or withdrawal in this account type. Therefore, current accounts are appropriate for long tenured loan repayments. Due to the nature of the current account, different taxes can be applied to these accounts as they are transactional i.e. withholding tax, PAYE which cannot be applied to savings accounts.

2. References – checking account at the point of opening them requires more verification than savings accounts, hence the provision of referrals from at least two(2) individuals, with current (checking) accounts in either same or other financial institutions and have equally been cross-referenced by other individuals. The cross-reference system creates a chain of relationships with the account holder and assumes the recognition of the person and credibility to transact business. However, I have to state here that cross-references cannot be treated as a Guarantee by the referee for any obligation(s) on any financial transaction with the individual.

3. Security of repayments – The loan repayments are made with cheques presented and paid in favor of the lender or lending institution(s).

4. Control – with a current account and cheques issued in favor of the lender, the lender gains control over the repayment obligation thereby reducing the risk of noncompliance or default on the part of the borrower.

PLEASE NOTE: Issuing a dud cheque in Nigeria is a criminal offence which is punishable on conviction with a 2 year jail term under Section 1 of the Dishonoured Cheques (Offences) Act Cap D11 Laws of the Federation of Nigeria.

A dud cheque is a cheque that cannot be paid because the person who wrote it has no money or not enough money in their bank account.

Issuance of dud cheques is a financial crime and thus falls under the purview of the Economic and Financial Crimes Commission (EFCC)

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