Explained: Why you should stay away from small-time loan apps

By Koustav Das: The proliferation of small-time or micro-loan apps catering to the increasing demand for credit, particularly among the younger population, has raised concerns about their legality and ethical practices.

While the promise of instant loans with minimal documentation may appear enticing, it is crucial to exercise caution and avoid such illegal apps due to their unregulated nature and resort to unethical tactics.

The government has repeatedly issued warnings about the risks associated with unverified loan apps, often operated by Chinese entities, highlighting both national security threats and potential harm to individuals.

A recent tragic incident in Bengaluru, where a 22-year-old engineering student took his own life after facing harassment from loan agents associated with a Chinese loan app, brings the focus back on the predatory lending practices prevalent in these apps.

Tejas, the student, succumbed to constant harassment from executives representing the Chinese loan app ‘Slice and Kiss.’

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The executives resorted to blackmail, threatening to expose intimate photographs stored on his mobile phone if he failed to repay the loan. Helpless and unable to meet the repayment demands, Tejas left a note apologizing to his parents and expressing his desperation, ultimately leading to his tragic decision.

It is not only Chinese loan apps but also small-time loan apps in general that individuals should avoid. In a similarly upsetting incident from last year, a software engineer from Chennai ended his life due to extreme harassment from loan app operators.

Illegal and dangerous

Small-time loan apps often operate illegally, employing aggressive measures for loan recovery, including harassment, intimidation, and even blackmail.

While these apps offer quick and easy loans with minimal documentation, they often charge exorbitant interest rates. The government has urged state authorities to take strict action against such platforms, emphasizing the threat they pose to national security, the economy, and citizens.

These apps primarily target vulnerable groups, including young individuals and those with lower incomes who are ineligible for loans from established platforms.

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Despite the ease of obtaining loans from these apps, the high interest rates make repayment nearly impossible. Furthermore, since these apps lack regulations, interest rates remain uncapped, and hidden charges may apply.

Adding to the concern, small-time loan apps misuse borrowers’ personal data, including contacts, location information, photos, and videos, which can be used for blackmail. Such practices violate the RBI’s Fair Practices Code.

These loan apps employ various channels such as bulk SMS, digital advertising, chat messengers, and mobile app stores to lure borrowers. Although the government has taken steps to crack down on these loan apps, thousands of them are still available on Google Play Store and Apple App Store.

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How to identify such predatory loan apps?

Identifying illegal loan apps requires some basic research. One of the primary indicators of a fake or legitimate loan app is its RBI authorization.

Authorized lending platforms are required to disclose their partner banks or NBFCs. It is essential to cross-verify the information with the financial partners’ websites.

Additionally, fake loan apps often lack a legitimate physical address. Legitimate lending platforms never ask for personal data such as contacts, photos, or videos, as they are only authorized to collect KYC data such as Aadhaar or PAN.

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Other warning signs include the absence of a proper website, the omission of loan documentation, unusually high interest rates, and lack of customer reviews. It is crucial to thoroughly review loan agreements, ensuring all details are clearly stated and adhering to RBI guidelines.

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