The digital lending ecosystem has made it easier than ever to access quick and convenient loans. However, lately there’s been a lot of ambiguity on the genuineness of digital lending apps. With the rising threat of illegal lending apps, borrowers have fallen prey to frauds. In such a scenario, both the lenders and borrowers have the responsibility to stay vigilant and follow the best practices in lending and borrowing.
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Here's a checklist to identify a fake lender and ways to protect oneself from fraud:
Look for a legitimate lender registered with the RBI
To ensure that the choice of lender is legitimate, the borrowers should visit the website and ensure that the app belongs to a legitimate lender registered with the Reserve Bank of India (RBI) or works with a bank/NBFC registered with RBI.
"To protect borrowers’ interest, RBI has set various guidelines which banks and NBFCs have to abide by. It is a mandate for all legal lending companies to clearly provide their Company Identification Number (CIN) and details of the Certificate of Registration (CoR)," Anil Pinapala, CEO and Founder at Vivifi India Finance told CNBC-TV18.com.
Carefully read the terms and conditions
Secondly, during loan application, borrowers should ensure that they carefully read the terms and conditions, understand the fine print, i.e., the repayment terms and the cost of accessing the loan.
"This is to ensure that they are making a well-informed decision, with full transparency. A few red flags to look for that can help determine a fraudulent lender are lack of transparency in loan interest amount or fees, pressurising the applicant to act immediately and the promise of a guaranteed approval without looking into the creditworthiness," Pinapala said.
A genuine lender will have clear and transparent terms and conditions that explain the loan application process, interest rates, repayment terms, and other fees. Be wary of lenders that use vague or confusing language or have hidden fees.
Consider reviews
Further, the legal lending apps also list a grievance redressal mechanism and are required to adhere to various regulatory guidelines on KYC and collection practices which are designed to protect the borrowers.
"Borrowers can also look at reviews from other customers on app stores to get an insight into their experience," Pinapala added.
Beware of upfront fees
According to Nageen Kommu, Founder & CEO, Digitap.AI, genuine lenders typically do not charge upfront fees for loan applications or processing. So, if a lender asks for a fee before providing the loan, it could be a sign of a fake lender.
Compliance check and intangible assets
Along with credential checks and ratings, it is imperative to dig deeper and check the lender from a compliance point of view.
"It is important to choose a lender that has adhered to all compliance norms applicable to it. Moreover, users must also thoroughly audit their customer service mechanism and ensure it is available 24x7 or through reasonable hours for grievance redressal," Kommu said while speaking to CNBC-TV18.com.
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