Digital credit: 5 red flags to watch out while borrowing online

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

Here are the 5 warning signs that borrowers must watch out for while obtaining digital credit —

1) Unlicensed lenders: A legitimate lending platform will prominently display its licensing information on its website or mobile app. Dealing with unlicensed lenders not only puts borrower's personal and financial information at risk but also increases the likelihood of encountering predatory lending practices.

“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,” says Sidharth Vishwanathan, Chief Risk Officer, KreditBee. 

2) Promise of guaranteed approvals: Along with staying vigilant about unlicensed platforms, borrower must also be aware of lenders that make unrealistic promises or guarantee approvals regardless of their creditworthiness. 

“Reputable lending platforms consider various factors, such as your credit history, income, and repayment capacity, before approving a loan," Vishwanathan says, adding that if a lender claims to approve your loan instantly without any verification or credit check, then it is likely too good to be true. 

3) Unclear terms and conditions: It is also necessary to always read the terms and conditions, including the fine print, before availing digital credit. Transparent lenders provide a clear breakdown of the repayment terms involved, ensuring you have a complete understanding of the repayment obligations.

4) Hidden costs: Some digital platforms may hide additional fees that can significantly inflate the cost of borrowing. However, legitimate lenders will always prioritize responsible lending, conduct due diligence before approving a loan and be upfront about the charges involved.

5) Lack of robust security measures: Protecting borrowers' personal and financial data should be a top priority for digital lenders. Platforms that do not have robust security measures or fail to provide clear information about their data protection policies must be avoided. 

“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,” Vishwanathan adds.

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. Borrowers can protect themselves from fraud by watching out for unlicensed lenders, unrealistic promises, hidden fees, inadequate privacy measures, and negative customer reviews. 

By following the above mentioned steps borrowers can stay clear of predatory lending platforms that overcharge and compromise personal information. As a responsible borrower, it is always wise choose reputable digital lending platforms that prioritize transparency, fair practices, and customer satisfaction.