The increase of digital lending scams: How to avoid using false loan applications
The epidemic has and continues to fundamentally alter consumer needs and corporate paradigms. Digital or FinTech financing is growing rapidly in India as it rides the wave of change. The exponential growth in clients using digital loans has coincided with a rise in unlawful lending platforms, which has hurt the credibility of the sector. According to RBI, nearly half of the 1100 digital lending apps that were available in January–February 2021 were unlawful.
Because of unexpected job losses, declining finances, and rising medical costs, millions of Indians have had to download rapid lending apps to get by.A country affected by the pandemic quickly developed into a haven for con artists aiming to take advantage of trusting residents. Indians who lacked technical expertise and had urgent financial requirements became easy targets for these con artists. What transpired was a tragedy marked by victimisation, blackmail, and several suicides. People can fend off the avalanche of digital lending fraud with awareness and caution.
Fraudsters create dishonest loan apps that promise quick and short-term financing. These apps deceive users while potentially charging much higher interest rates.
The con artists use pressure techniques to entice unsuspecting borrowers by advertising “limited-period specials” and requesting hasty responses.
Borrowers must be aware of these frauds and adopt the following safeguards, among others, when conducting financial transactions.
Confirm RBI approval
All digital lending applications must be registered with the Reserve Bank of India (RBI), or the entity that owns the app must partner with an NBFC or bank that is registered with the RBI. Lending is not permitted by lenders who are not registered with the RBI. Borrowers should verify the lender’s registration with the RBI before taking out a loan through any digital lending app, and they should also check their credentials, including their registration number and status, on the RBI website. Just as lenders adhere to know-your-customer (KYC) standards before approving a loan, borrowers should also research their lender to prevent fraud.
Recognize the red flags?
Illegal digital lending apps frequently don’t even have a website or list one. This is a warning sign on its own. Borrowers shouldn’t ever download a loan app from a company that doesn’t have a website. These fraudulent loan applications occasionally name a website and falsely claim to be affiliated with an NBFC. Therefore, borrowers should also check the website of the NBFC to confirm the partners’ names.Digital lenders who do not adhere to KYC standards are likewise questionable. Additionally, borrowers should be alert if the lender seems more concerned with getting personal information than running credit reports. Additionally, borrowers should be aware that a true NBFC or bank will never demand payment before reviewing a loan application. The loan processing fee levied by NBFCs and banks is subtracted from the loan amount approved rather than being requested in cash up front by the borrower.
By keeping an eye out for these warning signs, borrowers may distinguish between real and phoney lending apps and steer clear of the latter.
Refuse to grant app access
One of the main goals of illegal lending apps is to gather data by tricking users into giving their permission to a variety of apps, which they then use for other purposes. Only after they have explicitly stated how they will use any data or access permissions they have obtained, are apps allowed to collect the barest amount of user information.Borrowers should carefully review the app permissions and remove any unnecessary permissions, such as contacts, location, or photo access. The majority of these dishonest digital lenders access users’ personal information, such as contacts and pictures, in order to demand further payments even after the loan has been repaid.
Check the app’s publishers/owners, user reviews, and other relevant information before downloading as a good practise.
Verify the loan agreement
According to the RBI’s Fair Practice Code, a lender must provide the borrower with all relevant information so they can make educated judgments. The majority of the time, fraudulent lending applications fail to offer loan agreements and other important details as required by the RBI. These online lenders may continually demand EMIs and exorbitant interest rates from the borrower in the absence of a loan agreement. Therefore, when requesting a loan from a digital lending app, borrowers must demand a loan agreement. They should also confirm the information in the loan agreement, such as the lender’s name, processing charge, interest rate, repayment schedule, penalties, etc.
Borrowers should also review the NBFC’s or bank’s website for any policies, such as those requiring disclosure under RBI standards, such as the Fair Practice Code, Grievance Redressal Mechanism, and Interest Rate Policy.
Prudence is a virtue
Prior to submitting a loan application through a digital lending app, borrowers should always exercise due diligence. The borrower should check the app’s name, rating, and reviews on the app store before downloading any lending apps. They should also confirm the corporation that runs the app’s physical address and contact details because fraudulent apps sometimes present inconsistent, partial, or inaccurate addresses or contact details. Fraudsters can be identified by their lack of evidence, unwillingness to reveal fees, demand for upfront payments, and disregard for a person’s credit history. These online con artists frequently put pressure on borrowers to act right away, but borrowers should never take action on the spur of the moment.
Key conclusions
Although long wait times and prejudices in lending have been eliminated by digital lending apps, these tools can still be abused to swindle innocent people. It doesn’t take long for the joy of receiving a loan within minutes to turn into the hopelessness of being extorted for months. The best way to avoid falling victim to a digital lending scam is to exercise caution, be aware of the tricks used by scammers, and take the required procedures to confirm the legitimacy of lending applications and NBFCs/Banks.
Borrowers must also behave responsibly as citizens of the nation by alerting the Reserve Bank of India to any fraudulent or unlawful digital lending apps.
