Instant loan providers are thriving in the presence of the digital frauds. They are luring gullible people looking for easy loans by harassing them later, using recovery agents, and sometimes even leading them to experience mental illness or suicide.
Let’s have a look at how these sharks bit people in portion by tempting them to take easy loans from illegal apps and crushing them completely by asking an extra amount to pay back.
It is important to understand how these sharks attack gullible people and trap them in their mouths of mental torture. Due to the pandemic, that hit the shores of the world’s economy, people lost their jobs and were unable to maintain their daily needs as there was no job opportunity.
Hence, they were engaged with these digital frauds so-called easy loan apps that tempted people to take loans from them. Borrowers satisfied their needs by opting for these loans. Eventually, what they experienced was harassment by these illegal apps.
Offering easy money to gullible borrowers regardless of their creditworthiness, these loan sharks operate through recovery agents using arm-twisting techniques.
App-based lenders are the new-age equivalent of old- era local moneylenders. More suicide cases have been reported across the country in the past six months due to the debt trap laid by these digital loan sharks. This is despite constant harassment by loan collection agents. Such incidents are reported to the police, but no legal action is taken against them until something more wrongful takes place.
A report of the Reserve Bank of India’s (RBI) Working Group on digital frauds, released in November, identified 600 illegal lending apps operating in India last year. There were approximately 1,100 lending apps available for Indian Android users across more than 80 application stores from January 01, 2021, to February 28, 2021.
Illegal loan apps have mushroomed as digital frauds, especially after the complete nation was COVID lockdown, which left millions of people jobless and in dire needs of funds.
The lure of small, uncollateralized, and short-duration loans became more appealing as banks and regulated entities were averse to lending money to defaulting borrowers. This credit gap in the system led to the rapid growth of such loan apps in the system
Scam of easy money
Typically, regular NBFCs charge an annual interest rate of 22-25 percent, while a bank loan has an interest rate of 7-12 percent. Even the most regulated lenders typically charge a commission of 1% to 3% from banks that originate the loan. The interest rate charged to the borrower can range up to 25 percent for a tenure of three months to five years.
In contrast, most loan apps that are not regulated by the RBI charge a monthly rate of 60% for the duration of six days to 36 days. The most lucrative aspect of these instant loan apps is the tenure of the loan, small quantum without collateral, and the fact that it does not require any CIBIL score.
A Credit score is an important metric that banks use in order to determine a borrower’s credit worthiness. It is a three-digit numeric summary of one’s credit history, rating and report, and ranges from 300 to 900.
The closer a borrower’s score is to 900, the better is the credit rating.
Unlike banks, illegal app-based lenders do not conduct any background checks and income verification, which suits needy borrowers. A borrower is expected to return the money in the stipulated time, with the interest component. If there is a default, the interest rate compounds per day.
Loan collection agents then contact family members and other on the borrower’s phone list. They morphed images for everyone on their contact list by using WhatsApp.
In desperation to stop such harassment, victims prefer to roll over borrowings from one app to another, leading to a debt trap.
Lack of strong regulations
Till then there are more than 100 illegal loan apps on the Google Play store that are not registered with the RBI.
These apps charge on lending and the rate is hyped with high amount of interest rate.
To stop these illegal apps, NBFCs should increase the consumer protection measure that need to be tightened and regularly supervised. This can be improved through digital supervision such that all lending entities can be monitored by the regulator in real time, using analytics.
Besides, industry experts reckoned that the RBI also needs to cooperate with financial regulators and other stakeholders to ensure that all lending activities are in compliance with lending norms. No non-permitted player should be allowed on digital stores, they said.
If you or someone you know has been a victim of illegal loan apps, there are solutions for you. SingleDebt can help cease harassment from these agents and handle the legal side for you. We urge you not to resolve this alone as this can lead to further harassment. Contact SingleDebt on +91 961 910 3594 or fill out the form either on the home page or contact page.