Borrowing Smart: Essential Factors To Consider Before Using Lending Apps

Lending apps have revolutionized borrowing in India. These apps provide quick and convenient loans, but they carry risks that borrowers need to be aware of. Although most of the controlled applications assure complete transparency and fair play, the other ones exploit loopholes which promise the borrowers unfavourable conditions with unseen fees, higher interest rates, and hard recovery measures. This requires the users to weigh the choice before they sign up to the loan. Borrowing into unknown consequences may land a person into a vicious cycle of debt, or even data theft and harassment.

Here's a further breakdown of what every borrower needs to think about to make responsible choices when using these lending apps.

1. Credibility of the App

It must be regulated by the RBI or affiliated with a registered NBFC or bank. Avoid applications that are not regulated as these may indulge in predatory practices like high interest rates or coercive recovery measures.

2. Interest Rates and Hidden Charges

Compare the published interest rates and be on the lookout for other charges that may appear in the small print, such as processing fees, late payment fees, or convenience fees. For example, a loan of Rs 10,000 with a 2 per cent processing fee means you get only Rs 9,800, but you pay interest on Rs 10,000.

3. Loan Tenure and Repayment Terms

Many apps provide short-term loans (7 to 90 days). If not repaid soon, it can be quite tiring on the pockets. Borrowing Rs 15,000 for 30 days might lead to a repayment of Rs 16,500, which can lead to financial stress.

4. Data Privacy and Security

Lending apps often request access to sensitive information like Aadhaar details and phone contacts. Verify the app’s data protection policies to avoid risks like data misuse or public shaming in case of missed payments.

5. Risk of Over-Borrowing

Quick loan approvals can tempt borrowers to take loans beyond their repayment capacity. A borrower with a monthly income of Rs 25,000 can get a loan of Rs 50,000, but cannot repay it. So, it is in a financial crisis.

6. Customer Support Availability

It must be available through the application. There should be support from multiple channels, like chat, email, or phone, for any disputes or clarifications. If there is not sufficient support, then borrowers may become helpless to sort out the issues.

7. Alternative Options

Other alternatives like personal loans from banks are usually better and more transparent than borrowing from family and friends. All these elements can be used in making borrowing decisions to avoid pitfalls associated with borrowing.