Instant, app-based loans can put you in a debt trap

Recently the Ministry of Electronics and Information Technology (MeitY) blocked 27 lending apps that were violating RBI guidelines. You should always be wary of red flags and choose lenders affiliated to RBI-registered banks and NBFCs. Let us list some of the red flags for getting an instant loan.

loan sharks: Regulators in advanced economies such as the UK and US have issued strict guidelines against loan sharks offering instant payday loans. For app-based lenders in India, the regulatory base is yet to be covered to some extent. Accordingly, it may be difficult for customers to identify unscrupulous apps in the beginning. Always inquire about the effective interest rate, tenor and penalty. Don’t ignore the terms and conditions on default. High processing fees and fines per day on default can turn the borrowing experience into a real nightmare.

credit check: A credit check by your lender is good for you. By taking a peek into your credit history, the lender ensures an affordable interest rate for the loan. However, borrowing when there is no credit history can raise interest rates and enter a dangerous territory. Hence, in the absence of a suitable credit history, cut down on borrowings.

Conservative lending: Don’t be fooled by not-so-good offers. Stick to your repayment capacity and borrow only as much as you can repay with your own money. You should never borrow to repay past loans, except for a strategically planned debt consolidation loan from a registered bank or NBFC.

Verify the creditworthiness of the lender: A mobile app lender does not come under the direct purview of RBI. They get their loans through registered banks and NBFCs. A legitimate lender will communicate the terms transparently and share an approval letter, loan agreement and EMI amortization schedule before disbursement. However, a scammer would have every reason to not share their license and policy documents.

Thrust for Advance Payment and Quick Decision: An online app asking for an advance payment or fee before granting a loan is another red flag. Don’t play into the hands of a pushy lender.

Keep your data safe: A lending app will always ask your permission and share the details of the action to be taken with your data. Your smartphone is a storehouse of your personal details, pictures and other sensitive information. Take a minute to review the kind of permission you’re giving. An app that doesn’t share details isn’t better dealt with.

Seek professional help: In a universe where you have thousands of lenders, it is best to seek professional help. You can sign up on the Loan Marketplace website or app and compare different offers. Debt markets also do not come under the direct regulation of RBI. But they do exercise due diligence in choosing their lending partners. A loan expert will guide you about the eligibility, interest rate and terms and conditions of the loan at no extra charge.

The dangers of online fraud are unlimited. Whether you have come across an online scam or are tracing one, file a complaint at www.cybercrime.gov.in or visit the nearest cybercrime police station.

Raj Khosla is the Founder and Managing Director of MyMoneyMantra.com