How to Stay Away from Fraud and Predatory Lending Practices with Digital Loans

How to Stay Away from Fraud and Predatory Lending Practices with Digital Loans

How to Stay Away from Fraud and Predatory Lending Practices with Digital Loans

Avoid downloading untrusted applications and avoiding those with poor user ratings or unfavorable reviews.

A warning sign is a loan application that omits important terms and restrictions.

The days of having to stand in line for a simple personal loan at the bank are long gone. The approval of the intended loan amount by the bank was not guaranteed, even after several paperwork submissions and several days of waiting.

By the year 2023, things have undergone significant alteration. With only a few clicks these days, you may get a loan in a matter of minutes. Apps for digital lending have grown significantly in the last several years. Many who previously could not afford a loan now have the chance to get one in a matter of minutes thanks to the quick spread of cellphones. The increasing prevalence of loan applications may be attributed, in part, to technological developments.

The flip side of expanding credit availability

However, some individuals fall prey to predatory lending tactics and loan schemes. The media often documents instances in which people are offered fast loans, only to have their bank account information taken out or pay astronomical interest rates instead. Predatory lenders often require consumers to pay hidden costs later on and frequently fail to disclose fees.

Illegal lending applications often lack explicit guidelines about pre-closure fees, processing fees, partial payment terms, and other related topics. Borrowers have to take the initiative to verify that the terms and conditions papers include at least these fundamental data. The Reserve Bank of India prohibits the kind of access to contacts that illegal lending applications often ask for.

Certain loan applications target people with little financial knowledge and charge outrageous interest rates that are far higher than the law. There are several instances when personal information is sold without the borrower's permission. Scammy lenders often use intimidation and threats to get debtors into paying back debts. The media has also often covered instances of con artists running lending apps without the required licenses and fabricating lending app cases.

According to an RBI advice, while many lending applications have valid listings on Google Play, users are often requested to download and install an other app version over WhatsApp in order to get around Google Play's security measures. Therefore, it is recommended against making purchases using untrusted applications.

Dos and Don'ts when borrowing money online

The Indian populace comprises a substantial portion without access to official funding sources. This group often uses lending applications that provide fast loan facilities with less paperwork requirements. An RBI working group study states that between January and February 2021, 500 digital lending applications in India were discovered to be unlawful, despite the fact that many legal lending apps adhere to standard practices.

To identify and stay clear of such traps, it's essential to abide by certain simple guidelines. To begin with, you need never to download any untrusted apps. Avoid downloading applications with very low user ratings or unfavorable reviews. Additionally, you should exercise caution when using loan apps that advertise 0% interest rates and be skeptical of those that need a "small" upfront payment in exchange for an alluring loan.

Examine the permanent address listed on the applications to make sure it is legitimate. A warning sign is a loan application that omits important terms and restrictions. Apps that are not associated with any bank or RBI-registered non-banking financial firm (NBFC) would operate similarly.