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Is a Banker's Draft or Cash Better When Buying a Used Car?

By: Scott McBride - Updated: 16 Jul 2010 | comments*Discuss
Is A Banker's Draft Or Cash Better When Buying A Used Car?

Most used cars cost thousands of pounds and not surprisingly, a lot of people will feel uncomfortable carrying about so much money. Understandably, the person selling the car will want payment in full before handing over the keys, so rather than pay in cash a buyer may consider using a banker’s draft.

At first glance, a bank draft looks very much like a cheque, but it is drawn on a bank’s head office. It may require two signatories – typically bank managers – and the bank issuing the draft will have its name and sometimes a hologram printed on the front or back. While an ordinary personal cheque is guaranteed only up to the amount of the cheque guarantee card, a bank draft can be for any amount. The draft will be made out to the person who is to receive the money, and the customer’s name will not appear on it.

The real advantage a bank draft has over a personal cheque is that the person selling the used car knows he will almost certainly be paid. As long as a bank draft is genuine and has not been lost or stolen, payment will be guaranteed. There are some used car buying scams involving fraudulent drafts, so be sympathetic if a seller is cautious.

Issuing a Bank Draft

Before issuing a draft, a bank may ask a customer to complete a written application form. The draft has to be used for a pre-arranged transaction, such as buying a car and once issued the draft should not be amended in any way. The customer will be charged a fee for the draft and must have the necessary funds, as his account will be debited with the amount of the draft.

It is a common misconception that when a bank draft is paid into an account the funds clear instantly. This is not the case, as drafts go through the same clearing process as other cheques, so if buying a used car with a bank draft do not expect the seller to release the car until he is certain the draft is genuine and has been paid.

For those who cannot wait for a bank draft to clear, there are alternative ways to transfer money, such as same-day electronic transfer of funds between UK banks. This can be more expensive than a draft, though, so check with the bank. There will also be cut-off times for receiving value on the same day.

Carrying Cash is Risky

Cash is instant, of course, and if the deal struck is worth hundreds of pounds rather than thousands, it may be an option worthy of consideration. Remember, however, that there are obvious risks attached to carrying around huge bundles of money.

It is not just the buyer who has to feel comfortable with a huge wad of cash in his pocket either. The seller may not be keen on dealing in cash for a number of reasons. There are counterfeit notes in circulation and if a seller does not trust himself to check the validity of the notes, he may want the money checked by a bank. Also, many sellers will not want to be walking about with a lot of money and so may insist on a bank draft.

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