Instant, app-based loans could run you into debt traps


Technology rollout amid Covid-19 in India’s financial ecosystem is in full swing. Over the past 18 months, banks and NBFCs have adapted quickly to this change. At the same time, we also saw a record increase in the introduction of fintech apps in India. A recent study by the app analytics company AppsFlyer has shown that from January 2019 to March 2021, India recorded the highest number of installations for financial apps worldwide. With 1.49 billion downloads, India dominates the universe of fintech apps, followed by Brazil and Indonesia with 500 million and 400 million respectively. The promise of real-time access to credit makes instant app loans (on the surface) more attractive than personal loans from established banks, especially when needed. However, rushing to borrow could be your first step towards a potential debt trap and ruined credit score.

Recently, the Department of Electronics and Information Technology (MeitY) blocked 27 credit apps that violate RBI guidelines. You should always watch out for the red flags and opt for lenders affiliated with RBI registered banks and NBFCs. Let’s list some of the red flags to look out for when drawing on instant loans.

Loan Sharks: Regulators in advanced economies like the UK and the US have strict guidelines against loan sharks offering instant loans. There is still quite a bit of regulatory ground to cover for app-based lenders in India. Accordingly, it can be difficult for customers to spot unscrupulous apps in the first place. Always inquire about the effective interest rate, term and contractual penalty. Don’t overlook the terms and conditions by default. High processing fees and late payment penalties per day can turn borrowing into a nightmare.

Credit check: Credit check by your lender is good for you. By looking at your credit history, the lender ensures an affordable interest rate on the loan. However, borrowing without a credit history can lead to usury rates and you may be stepping into a dangerous zone. Therefore, in the absence of an adequate credit history, limit borrowing.

Conservative bonds: Don’t be swayed by offers that are too good to be true. Maintain your ability to repay and only borrow as much as you can repay with your own funds. You should never borrow to pay back past loans except with a strategically planned debt consolidation loan from a registered bank or NBFC.

Check the credentials of the lender: A lender for mobile apps does not fall within the direct remit of RBI. They obtain their loans through registered banks and NBFCs. A legitimate lender will transparently communicate the terms and conditions and share a sanction letter, loan agreement, and EMI amortization schedule prior to the payout. However, a fraudster has every reason not to divulge his license and policy documents.

Prepayments and the urge to make a quick decision: Another red flag is an online app that requires prepayment or fees before paying out loans. Don’t play into the hands of a pushy lender.

Protect your data: A rental app will always ask for your permission and share the details of the action you want with your data. Your smartphone is a memory for your personal data, pictures and other sensitive information. Take a minute to review the type of permission granted. An app that doesn’t share details is better left untreated.

Find professional help: In a universe with thousands of lenders, it is best to seek professional help. You can log into a credit marketplace website or app and compare different offers. The credit marketplaces are also not subject to the direct regulation of the RBI. But they follow due diligence when choosing their credit partner. A loan professional will advise you on the eligibility, interest rate and terms of the loan at no additional charge.

The dangers of online fraud are unlimited. Whether you are exposed to or find one online scam, file a complaint at or visit the nearest cybercrime police department.

Raj Khosla is the founder and CEO of

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