Rising costs of living, lifestyle expenses, and a growing need for emergency funds prompt people to look for more loans. With so many banks and non-banking financial companies (NBFCs) providing easy access to loans and credit lines people are finding digital borrowing more convenient these days.

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These online apps present an alternate option to lending from banks and other NBFCs as they offer quick approval and disbursal of loans through an entirely online process. The digital lending platforms are also gaining more acceptance as they require minimum documentation, and claim to offer generous terms and interest rates.

However, much like everything else in the world of finance, if something sounds too good to be true then it really needs a closer look. Online lending apps have attracted significant attention over the past couple of years over their dubious loan terms, illegal loan recovery practices and other fraudulent practices. Multiple recent suicides have been reported with the victims blaming online loan apps for severe harassment and extortion over unpaid dues.

When to use digital lending apps

While there are several fraudulent online loan applications, individuals should only opt to head for a personal loan from loan apps as a last resort. Personal loans attract a large amount of interest and can have multiple fees associated with them. However, these loans can often be the last resort for individuals who do not have any or a low credit score, need quick dispersal of funds, or have otherwise been rejected for loans by more traditional lenders.

Remain vigilant while using loan apps

If you have exhausted all your options and are choosing to go with an online loan app, then you can take certain steps to ensure that you are not scammed, harassed or cheated. Firstly, before downloading any app, head to the Reserve Bank of India’s website and ensure that the app or its parent company has been whitelisted by the central bank. The RBI also regularly publishes a list of fake loan apps. The list in August 2023 included over 772 such apps, which are banned as they are not registered with the central bank. If the app is not on the whitelist or is present on the banned list, avoid it at all costs.

Another red flag that you should keep an eye out for is when downloading an app take a look at the permissions it is asking access to. Whenever you download any app, the app asks for certain permissions for your devices’ other functionalities. For example, apps like Instagram will ask permission to access your device’s camera and photo galleries. Any loan app should ideally ask for no permission. If the loan app you download asks for multiple permissions, especially to the video gallery, camera, audio recordings, mic, phone calling and messaging, then deny those permissions and delete the app immediately. It has been seen in the past that predatory loan apps harass borrowers who cannot pay on time, often due to hidden fees and stipulations, by sending fake messages, holding their pictures for ransom, or morphing images for extortion.

Finally, always check the reviews of any app online on apps stores, forums and basic internet sleuthing. Do not base your judgement just on the rating, but see the number of reviews and read the review. Oftentimes fake apps will use bots and paid reviews to boost their ratings.

Taking any kind of loan is an important financial decision and should be taken with care and caution. Do not believe yourself to be immune from falling for these scams and fraudulent apps as they are created with the express intention of entrapping innocent individuals. However, if you do suspect that you have been a victim of such an app or are currently facing harassment then file a complaint with the police and the consumer forum. You can also file a complaint with the Banking Ombudsman of the RBI.