Applying for digital credit? Beware of these 4 red flags on digital lending platforms

In recent years, digital credit has grown in popularity as a simple and rapid way to acquire money when needed. However, with the growth of online lending platforms, it's important for borrowers to exercise caution and be aware of any potential warning signs that could point to fraudulent or untrustworthy practices. 

Here are the four warning signs to watch out for while applying for digital credit — 

1) Unlicensed lenders or platforms:

Dealing with unlicensed lenders not only puts your personal and financial information at risk but also increases the likelihood of encountering predatory lending practices. Sidharth Vishwanathan, Chief Risk Officer at KreditBee, says, “One of the most critical red flags to watch out for is dealing with unlicensed lenders or platforms. Before applying for digital credit, consumers must always verify that the lender is licensed by the RBI and authorized to provide finance through their platform.” A legitimate lending platform will prominently display its licensing information on its website or mobile app. 

2) Stay clear of unrealistic promises or guaranteed approvals 

Along with staying vigilant about unlicensed platforms, consumers must also be aware of lenders that make unrealistic promises or guarantee approvals regardless of your creditworthiness. “Reputable lending platforms consider various factors, such as your credit history, income, and repayment capacity, before approving a loan. If a lender claims to approve your loan instantly without any verification or credit check, it is likely too good to be true.” he adds. Legitimate lenders prioritize responsible lending and conduct due diligence before approving a loan.

3) Hidden clauses in fine print

Furthermore, it is also necessary to always read the terms and conditions, including the fine print, before availing digital credit. Some digital platforms may hide additional fees that can significantly inflate the cost of borrowing. Transparent lenders provide a clear breakdown of the costs involved, ensuring you have a complete understanding of the repayment obligations.

4) Data at risk

Protecting your personal and financial data should be a top priority when borrowing digital credit. Some other red flags may include platforms that do not have robust security measures or fail to provide clear information about their data protection policies. “Reputable lenders employ encryption technology, secure servers, and stringent privacy protocols to safeguard your sensitive information. Look for trust indicators like SSL certification and secure payment gateways to ensure your data is in safe hands.” says Vishwanathan.

While digital credit offers convenience and accessibility, it's crucial to remain vigilant and aware of potential red flags that may indicate fraudulent or untrustworthy lending practices. 

By watching out for unlicensed lenders, unrealistic promises, hidden fees, inadequate privacy measures, and negative customer reviews, borrowers can protect yourself from falling victim to predatory lending or compromising their personal information.