Dark side of personal loans: THIS is how you can avoid predatory lenders

Predatory loan applications should be avoided by those who are low on funds and intend to raise a personal loan. Even though Google banned over 4,700 illegal loan apps between 2021 and 2023, the problem of illegal lending apps is no longer as widespread. However, some loan apps still charge outrageous interest, impose hidden fees, and use predatory tactics to collect money.

In fact, Nithin Kamath of Zerodha brought attention to the threat of loan lending apps pestering consumers who are forced to pay far more than the borrowed amount in his social media posts early last year.

He emphasized that loan applications that request access to messages, contacts, and photos are a serious red flag. He denounced them for charging outrageous interest rates and likened them to traditional money lenders

In a number of situations around India, the applications used predatory tactics to collect the debts, forcing unlucky victims to repay their loans repeatedly. In fact, the RBI Governor suggested in August 2024 that a database of credit lending applications be established so that users could differentiate between legitimate and illicit apps.

Here, we provide some advice on how to avoid using such illicit apps.

Take these precautions to avoid using fraudulent loan applications.

I. Data access: In a few of instances, these applications were able to harass borrowers by threatening to release their altered photos. Thus, one should use caution before granting access to the full phone.

II. Bank relationship: Lending service providers (LSPs) frequently collaborate with well-known banks or NBFCs. The lender gains credibility and trust as a result. Therefore, it is possible to analyze the background of apps and determine whether or not they are connected to a regulated entity (RE).

III. Processing fee: Although some apps have cheap interest rates, they also have outrageous processing fees—up to 10%. This is just another warning sign that borrowers need to be mindful of.