Red flags you should look out for while borrowing digital credit

Red flags you should look out for while borrowing digital credit

Fintech apps, particularly those for lending, have received wider acceptance among users in the last few years. But the digital lending boom also brought with it certain challenges. While credible fintech players have been contributing to greater credit inclusion by bringing the unserved and underserved customers into the fold of formal credit, some players have been taking advantage of the skewed and credit-starved market situation in India. The result: Several customers, particularly from low-income groups in need of finances, have been steeply exploited by what are called ‘predatory loan apps’.

Most of us may have interacted with fintech apps at one time or another and they’ve proven to be saviors in hours of need. However, digital lending scams and cases of exploitation have also become rampant. The fake/unauthorized apps not just use your personal information, but also resort to threats and harassment to exploit the credit users and fleece them.

The market is flooded with thousands of lending apps today. So, how to know if you can trust your fintech app? Worry not! There are several red flags that can tell you if the app is genuine or not, and we are here to tell you what they are.

Here are some tell-tale signs that you should be wary of while borrowing digital credit.

Rushed approval and the pressure to act right now

This is one of the classic tactics used by unauthorized/fake lenders. They target vulnerable consumers and offer them loans at ‘attractive prices’ claiming that there are no strings attached. They mislead customers by creating a false sense of urgency –  for example: offers that would end on the same day – to mount pressure on credit seekers to act right then and there. The agents rush through the entire process and don’t give the customer enough time to understand the terms and conditions or do some due diligence. If you experience something like this, stay away from such apps/agents. Never agree to anything on an impulse or under pressure, let alone decide to borrow some credit.

If mandatory processes are skipped, then it spells danger
Don’t fall for false promises such as ‘instant loan without documents’ or ‘guaranteed credit without any process’. Legal entities and authorized lenders have processes laid out, as mandated by the Reserve Bank of India, before they could lend. If the lender is skipping the Know Your Customer (KYC) process or is not asking for any documents, then it is most likely that it is an attempt to take advantage of the customer. No credible lending agency would disburse loans without checking customers' credentials.

Responsible and authorized fintech lending apps complete the entire KYC process, by seeking various documents such as bank statements, PAN, identify and address proofs, and others. Chances are that ill-intentioned lending apps/agencies don’t bother to make an effort to comply with the norms. Credible and genuine players lend to qualified borrowers, who will be able to repay their loans. Of course, there are also bona fide players who offer credit to new-to-credit (NTC) customers or those with zero or inadequate credit history. But, such players assess the creditworthiness of the customers thoroughly by using different mechanisms before approving the loan. So, don’t entertain those apps/agents which don’t follow the due process.

Lender, where art thou?
Lending agencies that look to exploit consumers often don’t reveal critical information such as their company registration details or address or background information. Run a quick Google search to see if the app/agency has a physical office address and an official website. Also, check the information related to the company’s management and its partners if any. It also pays to scan through reviews either on Play Store or on the internet. If you don’t find most of the above details even after surfing the internet for 15 minutes, it is likely that you’ve been approached by a scamster. Furthermore, if there are inconsistencies in the details available, don’t proceed any further because illegal apps often give false information to escape legal and regulatory scrutiny.

Asking for payment through unconventional methods
If you are asked to pay upfront money for ‘approval sans documentation’ or with an assurance of a ‘guaranteed loan’, there is your major red flag. No legitimate lender seeks payment before processing the loan. Also, if you are asked to repay the loan in unconventional methods such as in cash or using another credit card or via other apps, then it should be among the first reasons to reject the app/agent.

In essence,
The government, the RBI and credible fintech players are constantly working together toward ensuring a safe and secure lending ecosystem in India. Between January and June of 2022 alone, Google banned over 2,000 unauthorized, fake, and predatory lending apps from Play Store. While the central bank is also tightening the noose around such players by bringing in stricter regulations, it is also important for the borrowers to be aware of these red flags and avoid interaction with them. Because, at the end of the day, a loan is to help you meet your current financial needs but not at the expense of your future financial security. As always, borrow safely (link to Borrow Safely article) and responsibly.

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