Postdated: What It Means, How It Works, Risks

What Does Postdated Mean?

The term postdated refers to a payment that is meant to be processed on a specified date in the future. People can postdate several types of payment methods, including checks and electronic payments. Payments may be postdated in a number of circumstances, including if someone sets up a payment arrangement with a creditor or when there are regular monthly payments set to come out of an account. Postdated payments cannot be withdrawn from an account until the date specified.

How Postdating Works

It's customary to provide payment for goods and services up front. But in some cases, the payer may provide the payee with a postdated payment. This means that the instrument used to make the payment is dated for a specific date in the future. This can be done using several payment methods, including checks.

By writing a date in the future on a check, the payer indicates that they do not want the payee to cash the check until that date. They may also include a note on the memo line indicating that it is a postdated check. For example, if Mike writes a check on the Jan. 14, but postdates it for Jan. 28, the bank will not (or should not) cash the check for another two weeks.

Postdated payments can be made using electronic methods as well. For instance, someone with a car loan can schedule postdated payments to be transferred electronically from their account to the lender.

Postdated payments can be used for several reasons. For example:

• An individual may write a postdated check when they don't have enough funds in their account, thus avoiding a non-sufficient funds (NSF) charge
• A tenant can provide their landlord with postdated checks for the rent when they move in to avoid late charges if they forget to pay
• Someone may offer postdated payments when they owe money to another individual or company

Special Considerations

The Uniform Commercial Code (UCC) enables lenders to loan money, secured by a borrower's personal property. Adopted by nearly every state, the UCC is a standard set of business laws that was first published in 1952 to regulate financial contracts. Article 3, Section 113 of the UCC outlines the rules for postdated checks. This section allows financial instruments to be either post or backdated and indicates that the payment cannot be made until the specified date on the instrument.

Keep in mind, though, that banks and credit unions can cash postdated instruments early. While they may not do so intentionally, there are cases when checks are put through by mistake. For instance, a teller may not notice the date on the check and process it that day. Or an individual may deposit a check through the automated teller machine (ATM). If the check goes through and bounces, the payer may be responsible for an NSF charge.

Postdated Checks and Payday Loans

Payday loans customers frequently use postdated checks to repay their lenders. These are risky, short-term loans. An individual borrows a small amount (usually $100 to $1,500) at a very high rate of interest. For example, $17.50 per $100 for seven days can translate to a rate of more than 900% on an annualized basis.

A payday borrower typically writes the lender a postdated personal check for the amount of the loan plus a fee. The lender cashes the borrower’s check on the agreed-upon date, usually on the borrower's next payday.

Most payday loan borrowers have poor credit and low incomes. They may not have access to credit cards, forcing them to use the services of a local or regional payday loan company. To add further risk, payday loans can be rolled over for additional finance charges.

Risks of Postdating

Since a time lag exists between when a person writes a postdated check and when a banker cashes it, sensitive information can remain exposed and vulnerable for days, weeks, or even a month. The opportunity for identity theft is high. Identity theft occurs when someone obtains personal or financial information of another person in order to assume that person's identity to make transactions or purchases.