Here are transparent and safer ways to avail credit at your fingertips

Payday scams have been an unfortunate side-effect of the flaws in the traditional lending system. These types of scammers tend to target the low-income group of people, falsely advertising loans with hidden charges that are not sufficiently clear in the contract terms. The interest rate can skyrocket if the borrower does not pay on time.

Imagine a person with an unfortunate cash crunch, they scour all available options, realizing that they cannot rely on traditional banks because they require collateral, have no prior credit history, or one of many other eligibility roadblocks. They opt for loans from other sources and end up losing to the fine print. For a loan worth Rs 10,000 to be repaid back in 3 months, some creditors can charge interest of 600 percent or even more, exploiting the lack of knowledge of the borrower. While this may seem bizarre and outlandish, it has been a widely prevalent practice across the globe.

The rise of FinTech has made credit penetration possible in even the remote corners of the country. While traditional lenders have sometimes relied upon onerous and costly paper-based traditional methods of underwriting, Fintech has embraced technology and made it possible to pass on the cost savings to potential borrowers as a way of lower ticket sizes and fast and convenient options. With nearly 300mm+ Indians that are New to Credit which may not be serviced by traditional lenders and the immense opportunity exists to promote financial inclusion.

However, it is imperative that lenders use caution and ensure that KYC norms laid out by the RBI are clearly followed and also borrowers are offered credit at lower rates of interest with repeat and greater repayment history so that they don't fall into a debt trap.

FinTech leaders have combined the safety of traditional banking with the agile nature of the informal sector, thanks in part to the rise of digitization. Today, most competent FinTech platforms enable quick and instant loans available at low rates while being completely transparent about the cost borrowers will have to bear. It isn’t buried in fine print, meaning borrowers are able to safely plan their finances.

Even before applying for a loan, an approximate repayment schedule can be calculated using an EMI calculator readily available on most lending portals. Naturally, this enables them to have complete control over their finances while still being able to live their dream or meet unexpected cash crunches.

Step 1: Fire up your smartphone, download a reliable instant loan app from a trusted app store and the app is either run or registered with an RBI governed NBFC or a bank. Don't fall prey to apps that promise 7-day, 15-day loans with a quick turnaround as they may be unregulated

Step 2: Look up the app’s policies and T&Cs. These will typically list out any and all charges. Make sure they’re a RBI recognized lender to be doubly safe

Step 3: Use the portal’s EMI calculator to arrive at the exact cost of the loan you intend to take

Step 4: Complete the KYC process for verification and underwriting

Step 5: Be sure to get a copy of the loan agreement that spells out the terms and conditions

Step 6: Understand your credit profile and creditworthiness and receive the money right in your account and maintain adequate funds to pay back your installments on time.

While no amount of regulation or advanced technology can entirely root out malicious intent, we can certainly come fairly close to a hassle-free, and even memorable borrowing experience. And it is precisely this idea that will drive adoption for credit in the country, encouraging economic metrics and adding value to all stakeholders in the process. Checks and balances, both by governments and private sector leaders, can go a long way in creating the credit utopia all of us desire deep down.

In addition, I believe that encouraging financial literacy, along with a policy of complete honesty and transparency, is the way forward to safeguard customer interests. It’s an exciting time to be both participating and observing India’s credit sector expand, evolve, mature and grow, simultaneously with the country’s borrowers, who are more aware than ever, and know how to protect their interests and make capital work for them.