The BuyT Desk
How relieving it is to get an instant, paperless, and hassle-free loan in your time of need? It is problematic only when this instant relief is short-lived. The increase in the use of mobile phones and the internet even in remote areas has led to a boom of digital lending apps. They provide short-term loans of small amounts without any paperwork. Such easy loans are attractive for all. In an emergency, you may hurriedly borrow money without realizing the devious terms and conditions of the loan. If you do not repay the loan on time, these companies levy a late payment charge.
However, the main disadvantage is that they levy interest of about 1 to 2% daily. As a result, the interest rate comes out to be 30 to 60% in a month. Eventually, a small loan amount becomes quite high and you are stuck in a debt trap. This is not all. The digital lending apps insult the borrower, misuse his personal and official data, and harass him and his family, friends and relatives in case he/she delays the repayment. The lack of rules and regulations in this sector has put the borrowers in a tight spot whereas these companies are having a field day.
Circle of debt
Digital lending companies have a very notorious way of recovering debt. It is very easy to download a digital lending app on iOS and Android. At the time of the download, the app asks for various permission from you without which it won’t go further. In the series of permission, they will also take ask permission for the use of your phonebook and photo gallery. If you deny these you will not be able to download the app.
Getting a loan is easy but then comes the tough part. If the repayment is delayed, the once helpful digital lending company will turn into a goon. The threat and mental torture are not just restricted to the borrower but his friends, family even his/her colleague are contacted through the phonebook. They will start blackmailing the borrower by telling him/her that they have full control of your phone’s photo gallery and threaten to upload the picture with morphed images on social media platforms.
They can even get hold of your personal sensitive data like your PAN card and details of your Aadhar number which could be misused. The police can dismiss your problem by saying that you have given permission for the use of a phonebook and photo gallery yourself. Finally, the pressure is too much to handle and the borrower is forced to either borrow more from relatives or take another loan to get rid of these goons. Until then the loan of a meagre Rs.5000 will have snowballed into a huge amount due to daily interest and late payment fee. This creates a circle of bad debt.
Be careful of short duration loans
Short-duration loans, also known as PAYDAY, have a short tenure of 10 to 15 days. Stay away from such loans. In case you take such a loan, assess the genuineness of the digital lending company.
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When the lending company is charging you even before the start of loan processing, it is better to look for another lender. This means that in addition to the processing fee, they will even ask for a pre-processing fee.
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Every lender decides on a loan repayment schedule. If the lender has not prepared the repayment schedule, then their genuineness is doubtful.
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A genuine lending company will ask for income proof details to assess whether you have the repayment capacity or not.
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The complete KYC process should be done.
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The lender should have a tie-up with a bank/ NBFC/ schedule bank.
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The lending process is genuine only when the company provides a loan agreement on the company’s letterhead to the borrower.
The Reserve Bank of India regulates banks and NBFCs. In June 2020, the RBI highlighted the guidelines about loan recovery. According to the loan recovery guidelines, the lender should not call the relatives or friends of the borrower. Also, they should not insult the borrower in any way. However, digital lending apps do not come under the category of either banks or NBFCs. They take advantage of this loophole and harass borrowers.
