As the fintech firms and banking institutions are competing to provide a more seamless and convenient loan approval process, availing loans though apps have become easy these days. While availing loans through apps or websites it is important to take precautions to avoid scams.
The digital lending market in India is witnessing rapid progress with many new-age fintech startups entering the digital financial services segment in large numbers. The digital lending market continues to grow with increased disbursements, indicating a growth potential for the industry.
As the fintech firms and banking institutions are competing to provide a more seamless and convenient loan approval process, availing loans though apps have become easy these days.
However, the industry has seen an alarming increase in unlawful digital lending apps, many of which have cross-border linkages. The Reserve Bank of India's (RBI) working committee on digital lending discovered that out of approximately 1,100 lending applications accessible by Indian Android phone users nearly 600 were illegal.
Many digital lending platforms and apps pose a considerable risk to consumers. It’s advisable to follow a few precautions while availing loans through these apps or digital lending platforms to avoid falling prey to scams.
Check lender’s credibility
It’s important to investigate the lender's credibility before availing a loan. With so many lenders competing for attention in the digital lending industry, it's critical to guarantee that a Non-Banking Financial Company (NBFC) or any other loan provider is registered in accordance with the RBI's regulations. It’s always avoidable to seek loans from lesser known apps or websites.
Check loan terms and conditions
Before applying for a digital loan, it is critical to study and comprehend the loan agreement's terms and conditions. This includes understanding interest rates, payback timetables, fees, and any other obligations. It's also critical to keep an eye out for any hidden fees or penalties for making late or early payments. Interest rates, prepayment penalties, processing fees, loan duration and repayment choices should all be carefully studied.
Don’t ignore privacy concerns
Check that the lender has a privacy policy in place that explains how they will use and safeguard your information. Be wary of unlawful loan applications that may acquire user data fraudulently by requesting excessive app permissions. To protect your privacy, restrict unneeded access to your contacts, location and photographs on your phone. Check the encryption techniques used to safeguard your personal and financial data during transmission, and ensure that the lender follows data protection and privacy regulations.
Avoid multiple loan apps
Understand that applying for a digital loan may need a credit check, which may have an effect on your credit score. Each credit check impacts your credit record, and applying for several loans in a short period of time might damage your credit score. Check your credit score and report any inaccuracies that might jeopardise your creditworthiness before applying for a loan. Given the possible impact on your credit score, you should only apply for loans that you are likely to be accepted for.
[Courtsey - The article originally posted on Aug 2023 in Zee Business - https://www.zeebiz.com/personal-finance/news-fintech-things-to-remember-when-taking-loans-from-digital-lending-apps-stst-247655]