Demand draft and cheque both terms are used in the context of banking and they both enable a person to take payment from the bank, however there are many differences between demand draft and cheque. Lets look at some of the differences between demand draft and cheque –
- Demand Draft can be defined as a method used by people to make transfer payments from one bank to another. In other words it is a written order for making payments and hence it does not require a signature in order to be cashed which distinguishes it from cheque which requires the signature of the account holder in order to be cashed.
- In case of demand draft bank take advance or directly debit the account and hence issuer of demand draft need to have enough balance in the account which is not the case with the cheque which can be issued even if issuer don’t have enough balance in the account
- Demand draft can be of 2 types one is sight draft in which the money transfer can be done only when proper documents are produced on sight while other is time draft in which money can be transferred only after a specific period of time. While in case of cheque there is no such classification required.
- Dishonor chances in case of demand draft is next to nil whereas in case of cheque there is always this risk that cheque may be dishonored by the bank due to insufficient balance in the account of the person who has issued cheque. Also payment of a cheque can be stopped by the drawer of the cheque before it is presented for payment by the holder of cheque, whereas, the payment of a draft cannot be stopped.
- A cheque can be made payable either to a bearer or order of a certain person. But a demand draft is always payable to order of a certain person.
- Demand draft is usually used for payment of school or college fees or government related contracts and schemes whereas cheques are more widely used for variety of transactions and hence scope and usage of cheque is more as compared to demand draft.
- Banks take charges for issuing demand draft and hence if amount involved is high then it leads to additional cost to the person who wants to have demand draft whereas in case of cheque no such charges are involved.