A Reserve Bank of India (RBI) Working Group on digital lending, which includes lending through online platforms and mobile apps, has found out that more than 600 illegal loan apps are operating in India. Most of these apps, used to cheat innocent people, are available on several app stores for Android users in the country, the working group said in a report. While trying to prepare a detailed report on digital lending app in India, the working group found out the existence of over 1,100 loan apps, which could be searched through keywords such as loan, instant loan, and quick loan. All of these apps were available across 81 app stores from January 1, 2021, to February 28, 2021, according to the working group.
These apps, which are not under any regulatory body, typically, charge high interest, gain access to phone data, and harass users in case of a default.
Today, with a plethora of fintech lending companies offering personal loans on their apps, borrowers are likely to get confused about which ones to choose for their borrowing needs and may even fall into the trap of fraud lending apps offering instant credit online. Needless to say, borrowers need to be very cautious before selecting or using any lending app.
Here are the key things users should check before selecting a lending app.
Know The Lender
Check the credentials: Make sure you check the credentials of the lending company. “It is imperative for a borrower to check the lender’s credentials and only work with an RBI-registered lender, whether it’s a bank or a non-banking financial company (NBFC),” says V. Raman, founder and chairman, CASHe, a credit-enabled financial technology platform that offers a wide range of consumer lending products and services, including personal loans.
RBI registration: Just like lenders perform KYC for each loan applicant, borrowers too must know their lenders before applying for a loan. They have to identify lenders that are registered with RBI. “RBI-licensed lenders follow a strict set of guidelines and have set code of conduct that ensures transparency thereby ensuring the best possible borrowing experience for everyone. If a lender is not RBI-approved or doesn’t have Indian incorporation, it most likely is unauthorized and is not bound by privacy rules set by the regulator,” says Raman.
Check the reviews: Is the company known or is it a reliable brand? “It’s a good idea to look at the ratings and reviews on the app store before choosing a lender. The information provided on the app stores gives the borrower a good sense of how the lender operates, and any unethical behaviour by the lender will be flagged or reported by the existing borrowers. Look for people who have reviewed the lender. The borrower should do a background check on these apps before they put their trust in any of these apps. It is advisable to trust only known brands so that you will be assured of the authenticity of the transactions,” said Raman.
Check if the website is secure: Most often, the website of the apps list is a secured website. A secure website always has https:// written before its website address. This shields your data from cyber criminals.
Check if the lender has a physical address: Make sure the lender you are borrowing from has given a physical office location. If the borrower doesn’t find an authentic physical address, then it is better to stay away from these lenders. Most of the unauthorized lending apps would rather be invisible to avoid legal consequences.
Know The Lending Practices
Access to personal data: Some lending apps ask for permission to access the contact details for underwriting and authenticity checks. While this is a common practice, responsible lenders keep this information totally confidential; that is, they do not under any circumstances disclose the data to any third party. Moreover, responsible digital lenders keep their data secure by performing regular information security audits to mitigate data theft.
Tech-enabled lenders also employ AI- and ML-based techniques to underwrite loans automatically and adhere to RBI-formulated collection procedures. This eliminates their reliance on contact lists, effectively putting an end to any fraudulent activity. Borrowers should be aware of these best practices before choosing a lender.
Costs and fees: Borrowers should be aware of costs attached to their loans and should thoroughly read through information to be aware of any hidden charges associated with their loan. Fraudulent apps often have high interest charges and processing fees that invariably adds to an extremely high cost. It is advisable to choose digital lenders who are transparent in their loan transactions with their borrowers so as to help them keep the borrowing expenses in check.
Google Play Store norms
Borrowers should be aware of the fact that Google Play Store prohibits lending apps that offer loans with tenures below 60 days. Checking this detail will help the borrowers to protect themselves from dealing with fraudulent lending companies.