Tech-savvy borrowing: How can you identify illegitimate lending apps? Here are 6 key tips

In today's digital age, the convenience of accessing financial services through mobile applications has completely revolutionised India’s digital lending ecosystem. However, amidst the plethora of options available, it's crucial to distinguish between legitimate lending platforms and the growing threat of fraudulent ones. With the rise in illegitimate lending apps preying on unsuspecting borrowers, safeguarding personal and financial information is not just important; it's a matter of urgency.

The Reserve Bank of India is contemplating the creation of a Digital India Trust Agency (DIGITA) to tackle cyber fraud and unauthorised lending apps. This agency will verify digital lending apps and maintain a public registry of approved ones. Any apps lacking DIGITA's endorsement should be deemed unauthorised for legal purposes. DIGITA will oversee the vetting of digital lending apps, fostering transparency and accountability in the process.

Also Read: Research well before borrowing from digital lending apps, says Madhusudan Ekambaram of KreditBee

As the regulatory body progresses towards eliminating illegitimate lending apps, it's equally important for you to remain vigilant and detect fake lending apps independently. Here are some tips to help you identify and avoid illegitimate lending apps:

Non-compliance with RBI regulations

The Reserve Bank of India (RBI) has stringent guidelines for fair lending practices. Legitimate lending apps or Loan Service Providers (LSPs) adhere to these regulations. Before engaging with a lending app, scrutinise its compliance by reviewing its website. Look for mentions of Banks or Non-Banking Financial Companies (NBFCs) which are lending partners of the app. According to the RBI, loan apps should either be a Regulated Entity (RE) with a Bank/NBFC licence or be partnered with at least one.

Download from official stores

To minimise the risk of downloading counterfeit apps, always download lending apps only from official app stores like Google Play Store or Apple App Store. Avoid downloading apps from web links sent via SMS, email, or social media, even if shared by acquaintances.

Also Read: Fake loan apps: What should investors do to protect themselves from these frivolous lending apps?

Absence of KYC process

Legitimate lending apps always require you to complete Know Your Customer (KYC) process to verify user identity and prevent fraud. KYC verification processes enhance security and compliance with regulatory standards. Be wary of apps that circumvent the KYC process, as they could be untrustworthy. While going through a detailed KYC process might seem tedious, it's crucial to be patient as it helps safeguard your financial information.

Lack of loan agreement

A legitimate lending app will always provide you with a comprehensive loan agreement which has details of your loan, such as processing fee, interest rate, and repayment schedule. Failure to provide a loan agreement upon request should raise red flags. Demand a formal contract and refrain from further engagement if denied. Apps that don't provide a loan agreement are likely to be fraudulent.

Request for advance payments

Illegitimate lending apps often solicit upfront fees or advance payments from borrowers for loan approval, contrary to the practices of genuine lenders. Please exercise caution when encountering such requests, as they are likely to be fraudulent. Legitimate lenders have transparent fee structures and do not demand payments before loan approval.

Also Read: Curbing illegal loan apps, empowering social firms: govt’s stability goals

Online reviews

User reviews on platforms like the Play Store, Google, and Facebook offer insights into the app's reputation and user experiences. Social media platforms can also serve as valuable resources for gauging the authenticity of lending apps. Many negative feedback and warnings could be a sign of a fraudulent loan app. Always prioritise apps with positive reviews and a strong reputation.

In conclusion, safeguarding yourself against illegitimate lending apps requires you to be vigilant and aware of the potential warning signs. Use these guidelines, prioritising transparency and compliance to mitigate the risks associated with fraudulent apps and ensure a secure borrowing experience. Remember, your financial well-being is paramount – always exercise caution when engaging with loan apps.

Yogi Sadana, CEO of Zype