Personal loans are only useful if they can be availed easily during the time of an unexpected crisis. But people have to submit the salary slip, bank account statement, ID cards and fill up the necessary forms, and wait for days until the bank approves the loan. Add to that the credit score hurdle.
Such inordinate delays and paperwork are what make the new fintech loan apps an instant hit. By submitting an online application and the ID card on these apps, the money will be credited to your bank account within hours. However, the true nature of these seemingly hassle-free apps will be revealed only after you take the loan.
Initially, there were apps and portals for submitting online applications for loans from the existing banks and non-banking financial companies. By just submitting details in a single app, the most suitable loan can be selected from different financial firms.
Soon after, several apps directly offering loans made their entry. These also got much encouragement in the name of fintech and startups. The number of consumers of such apps increased due to the simple procedures and also because money was credited without much delay. Thus, app-based lenders gained much popularity, especially among youngsters.
Not concerned over interest rate?
Most of the youngsters see nothing wrong in taking a loan, irrespective of the interest rates, if they can avail it without much paperwork. Even when the interest rates for standard loans are being slashed across the country, some people are taking loans from app-based lenders with huge interest rates. Even if the repayments are regular, the interest rate would be five-six per cent, which is almost twice the rate charged by the credit cards.
Defaults would further escalate the interest rate. Then the amount to be paid would become almost double or more within six months.
Reserve Bank regulations
Only banks and non-banking financial companies approved by the Reserve Bank of India are allowed to disburse loans via apps and portals. Mobile apps and portals that lend money should disclose from which firm the loan is being availed. Complaints can be filed if the interest rate, the method of calculating the interest and other fees levied are not in compliance with the Fair Practice Code issued by the RBI. The apex bank has made it clear that misuse of personal details and bullying by recovery agents for loan recovery are offences.
Big data analysis
App-based lenders grant loan after accessing details from social media to analyse the borrower’s online conduct, contacts and consumer behaviour. They are using digital technologies such as artificial intelligence and big data analysis for this. If the borrowers have reputed people on their contact list, they would get loans even if they do not have a credit score. The borrowers would not even have guessed that the loan was disbursed after getting a clear picture of them by checking megabytes of data, including text messages and posts, within minutes.
The app-based lenders are eager to give loans for those who have an energetic presence on social media platforms of WhatsApp and Facebook. Even if the borrowers do not have a credit score, they just have to hand over the contact list to the lender. However, if the borrower defaults, messages would be sent to close relatives and friends. Messages would be widely circulated, while claiming that the borrower had taken the loan and indulged in shady financial deals.
When you download the app, do not give access to all the details on the phone. Do not take the loan if it is not clear from which bank or financial institution the loan is being availed from. Calculate the annual interest rate from the given daily or monthly rates. Also, have an understanding on the method for calculating the interest rate, penalties and other charges. Read carefully the copy of the loan contract and ensure that personal details would not be misused or accessed without permission.