In India, technology has transformed financial services and has given rise to a whole new industry, popularly addressed as fintech. This industry has witnessed phenomenal growth in India and across the globe in the past few years. According to Inc42data, between January and August 2021, fintech companies received funding worth $806 million, making up the second-largest share—18 percent—in the fintech funding pie. It has witnessed magnificent growth because of easy credit business models like peer-to-peer lending, BNPL, and digital loans. It has also ushered innovation in ancillary industries or enablers of fintech space such as e-KYC, payments gateway, credit scoring, etc.
These trends have gained the attention of investors as well as fraudsters who have come up with several ways to con a system and make quick money. According to the Reserve Bank of India’s working report, over 1,100 digital lending apps are available on Indian app stores, out of which more than 600 lending apps were found unlawful.
Availing of a personal loan through a digital lending app is relatively easier, especially during the COVID-19 pandemic, as it has also increased personal loan scams. In fact, within the past year (up till March 2021), 45,613 loan fraud cases were reported, which amounts to roughly Rs. 4.92 trillion, revealed by the Reserve Bank of India.
Buy now, pay later; alternative payment methods have inspired digital payments over several years. It is the perfect solution for both merchants and consumers, but it also targets digital fraud. Fraudsters leverage various tactics to defraud BNPL services and their customers, with account takeovers (ATOs), cited as the single most prevalent threat. Fraudsters can access users’ payment information for use elsewhere. They can log on to any eCommerce sites that accept the BNPL provider and make purchases with the victim’s credit. This technique can be used for other payment services, but it can be effective with BNPL as the victim is not billed immediately and may not notice the activity after a long time.
Do’s to be kept in mind while opting for personal loans:
Do check the credibility of digital lenders – Fintech companies in India have taken an aggressive approach in offering instant loans, so it’s a very crucial thing to check lenders’ credibility. A consumer should check that lenders should be verified by the Reserve Bank of India and must have reliable lending history.
For fraud prevention, read and understand fine print: Any authorized lender has eligibility criteria and sets terms and conditions attached with the loan, which works as a contract between the borrower and lender. It will equally protect their future interests as it is for yours. It will also help lenders to make an informed decision.
Do research before making an informed decision: Before choosing any digital lenders, make sure you compare interest rates, lending terms, loan tenure, and repayment options. Select the lending option that is most suitable for your needs and financial situation.
Don’ts to be kept in mind while opting for personal loans:
Don’t share sensitive details: An authorized lender will not ask your personal information like card details, OTP number, and insurance details for providing a loan and if any lender is asking consumers for such details then they might be pushing you to make a wrong decision, so it’s better not to fall for such antics and make sure to do your due diligence before zeroing in on which personal loan you want to avail yourself of to avoid getting trapped in a scam.
Avoid physical contacts: Online lending is structured to make contactless, safe, and hassle-free lending process. So, if a lender or an agent is asking you to hand over documents physically, it simply goes against the very structure formant. Therefore, it is better to upload all the documents on the verified lending company account and not entertain any agent asking for physical contact.
Look beyond interest rates – Checking interest rates is an important part of the research plan. However, it is not everything. A consumer should also check pre-payment charges, processing fees, and pre-closure charges, as they may make a marginal difference later. Remember, a personal loan is a short-term loan. In most cases, a consumer can pay back a loan in a maximum of five years. With time, your income may gradually increase. Thus, your pre-payment charges shouldn’t be too high if you decide to pre-pay or pre-close the entire loan amount.
According to a report, personal loan scams are becoming very frequent these days, not consumers, but lenders can also be targeted by fraudsters; bot attacks are increased by 38% and target financial services organizations. Even digital lending players play a significant role in preventing these digital frauds, which has increased during the covid-19 pandemic. Severalfintech players collaborated and formed a non-profit organization like FACE (FinTech Association for Consumer Empowerment) to drive ethical lending practices in India.
Views expressed in this article are the personal opinion of Akshay Mehrotra, CEO, and Co-Founder at EarlySalary.