The Enforcement Directorate (ED) recently raided many premises of online payment gateways such as Razorpay, Paytm and Cashfree in Bengaluru following complaints of hackers and fraudulent customers having siphoned off ₹7.38 crores by tampering and manipulating the authorisation process of digital lending institutions. This is not the first time some digital lenders’ questionable practices have come into focus. The rise in the number of frauds by online lenders prompted the Reserve Bank of India (RBI) to frame new rules regarding sourcing digital loan customers. The new rules put in place will protect vulnerable borrowers from getting looted by many digital lenders. The RBI’s lending regulations will help to curb predatory interest rates, unethical and coercive recovery methods, hawala transactions, and other unlawful practices.
Know what you are paying for
When you seek a loan, be it online or offline, for any purposes, you will be asked to bear additional expenses such as application fees, processing charges, late payment penalties and payment on documentation. Before taking any loan, read the documents carefully to understand the charges involved and why you are being asked to pay. The RBI in its new rules has addressed the complexities regarding the charges. The new rules mandate online lenders to provide their borrowers with a one-page fact sheet containing details of all yearly charges in percentage form.
Pay attention to interest rates
What if you are harassed despite having repaid the loan? What if the repaid amount is many times that of the principal borrowed? These questions reclaim our focus on the exorbitant interest rates charged by many digital lenders. Many borrowers pine how some digital lenders charge as high as 11 per cent on personal loans sought from them. Even loans against securities and gold beget high-interest rates. Numerous instances of digital lenders asking for 50-60 per cent interest on their loans have swept the web as borrowers then complained of harassment following non-repayment of the loan amount. Not that borrowers cannot seek loans from other sources. However, the promise of instant loans has caused many borrowers to download these apps and apply for small loans or credit requirements. Not all loan-giving digital apps will swindle you off your hard-earned money. However, you must be aware of the interest rates being charged before accepting the loan offer.
Borrow only what you need
How many people do we know around us living life on credit? You may blame it on excess credit card usage or more access to personal loans. This has resulted in many people reeling under the burden of debt. The fact that many people take on personal loans to repay their credit card debt or consolidate their debt to get rid of multiple loans is evident in the enormous borrowing that many people live on. Most of these loans are taken for lifestyle maintenance though there may be other reasons too for incurring unwanted debt. Avoid unwarranted debt. Borrow only that you need and will be able to repay. Also, if the loans are too many, consider building a second source of income like taking up a freelance gig, business or selling off useless assets.
Know the look-up period
Not many borrowers are aware of the free look-up period availed by digital lenders as in insurance. Just like in insurance, wherein the customers have the option of returning the policy document and claiming a refund within two weeks of buying it, borrowers can also rescind their interest in the loan. However, many digital lenders charge their borrowers for the look-up period facility. They charge interest for that period proportionately. While the RBI has cautioned digital lenders against anomalies while lending, it has also advised borrowers to exercise caution while borrowing money using these apps or while withdrawing their loan applications.
Know what you agree to
You must know how much you want to borrow so that you do not find yourself at the mercy of the lenders. Be aware of the facilities provided by your bank and the products offered to you as loans. You can make use of the consent-based mechanisms for the same. This is because many customers have raised concerns over blanket consent obtained over the phone data of the borrowers. This means that many lenders use the data from phone books to harass customers over loan products while also seeking their repayment.
Borrowers must share only the data necessary for taking loans instead of sharing every little information that can be used against them. Disallow lending apps to access your details through both official and personal details. Block all unwanted calls by lending companies in India to ensure that they do not lend you an amount without your consent. The RBI via its new regulations has given borrowers the right to consent to loans given in their names, thus, giving them more protection.
Digital lending has changed the way loans are being doled out. However, it has its set of cons too. The democratisation of finance has its evil too that we must escape with prudence and careful financial planning.