Your guide to borrowing safely

Your guide to borrowing safely

Until a few years ago, seeking credit (or) borrowing funds was a tedious task. The processes were elaborate and time-consuming, hence more secure as well. There were several checks and the financial institutions used to do thorough scrutiny of the applicants. Similarly, customers also had time to go through the terms and conditions of borrowing upfront as there was an element of human intervention – agents/employees of the financial institutions used to be the interface between FIs and customers.

Enter the fintech era, we have a plethora of apps and platforms at the disposal of our fingertips. You also have hundreds of options to choose from. But how safe are they? We have reduced human intervention to a minimum and made the processes faster and seamless; heralding new beginnings. But new beginnings also bring along new challenges. For the lending ecosystem, while fintech brought in revolutionary changes it also has exposed that it is easier to take advantage of the vulnerabilities. Since borrowing has become easier, fraud has gone up. Everything happens in minutes, if not seconds, and by the time customers understand the process and weigh their options, it is too late.

But there is nothing that some awareness can’t solve. Therefore, here’s a ready reckoner for you to borrow safely.

KYC is good, but it is time for KYL
Know Your Customer (KYC) is the initial step for any process these days, especially in the financial services space. Every financial institution requires you to complete the KYC process and it is also mandated by the Reserve Bank of India (RBI), which regulates all financial services.

Like KYC, the first step in your credit borrowing journey should be KYL – Know Your Customer. Check the lending app’s credentials and if it has a banking or an NBFC license, which is mandatory for lending businesses. Only regulated entities can lend and if you don’t find these credentials easily (on the lending business’ website or app), then there are high chances that it is an unregulated entity. So, borrow safely only from RBI-regulated entities.

Review partnerships
Many unregulated apps claim to have partnered with regulated entities for loan disbursals and repayments. You can verify this by going to the said partner’s website or by calling the said regulated entity’s office. If you don’t find any information regarding the claimed partnership, it is your cue for junking the app.  

Devil is in the details
More often than not, unregulated apps – which are often described as predatory lending apps or loan shark apps – bury the key details including the interest, tenure, processing fee if any, the penalty in case of delayed repayments, and other significant terms and conditions. Instead, all they do is make it look attractive by claiming to be offering a really low-interest and quick loan that doesn’t need any paperwork. Their goal is to make you sign up for the loan so that they can later fleece you by levying heavy interest and penalties in case of delayed payment. Don’t fall for adjectives like low-interest, easy, no documents required and no frills loans. The devil is in the details. Ask for the key facts statement (KFS) that has all the necessary information. Recently, the RBI has made it mandatory for regulated entities to make KFS available to borrowers before the execution of the loan contract.

Agreements are important
As difficult as it may be to go through huge amounts of text and jargon, it is important to sign loan agreements with the entity you are borrowing from. A loan agreement or a sanction letter will not only give you all the details of the lender, but will also become your arsenal to take legal recourse against the entity in case of fraud. Therefore, do no proceed without signing the loan agreement. If the lender is not providing the loan agreement before the last step of the loan process, then the lender is not only skipping a mandated part of the loan process but is also putting you at risk of potential fraud.

The bottom line
Borrowing can be unavoidable sometimes. Be it for buying our dream house or the vehicle we always wanted or the course we wanted to study or even for splitting our bills over time for financial convenience, only a few of us could afford to avoid borrowing at various times in our lives. Of course, there’s nothing inapposite about borrowing for it will only aid in making our dreams and goals reachable. But, borrowing safely should also be your primary priority along with your goals. Another pro-tip: While borrowing safely is necessary, borrowing responsibly is the key. Happy borrowing.

Note: If you want to borrow from a safe, secure and transparent platform to upgrade or realize your dreams, check out ZestMoney by clicking here.