How to Avoid Personal Loan Scams and Scams – Forbes Advisor INDIA


Demand drives supply in any market and the financial services sector is no exception. As the industry expands and there is a growing influx of players, there is also an undesirable side effect that is appearing more and more frequently. This is the alarming trend of people being scammed by fraudulent companies posing as legitimate financial companies. This is especially true for credit scams in India as evidenced by the increasing coverage of people losing money, property and in extreme cases even their lives to such fraudulent credit scams and their consequences.

While these cases are very common, they could be preventable with the right attention and awareness. Let’s examine what is a credit scam and how you can avoid becoming a victim of such unscrupulous practices.

Types of scams you need to know about

data phishing

With the rapidly growing number of internet and smartphone users in India, the number of scams and fraudulent activities targeting them has also steadily increased. Financial fraud particularly targets vulnerable individuals such as the elderly or the financially illiterate, but none of us are immune to their devastating effects. Typically, data phishing is carried out by scammers under the guise of financial service providers, ranging from well-known banks to companies offering attractive new offers.

In the case of phishing-related credit app scams, the most common way people are targeted is by providing false information. A person posing as a representative of your bank or financial services provider may visit your work or office, or contact you via text message, email, or phone, and request sensitive information such as your card number, PIN, and OTP. If you reveal these details, they will gain access to your accounts and they will start stealing your money through wire transfers or transactions.

In certain cases, scammers also create web pages that resemble financial institutions‘ websites and if you don’t look carefully, you can be tricked into entering your information on such a fake page and allowing them access to your accounts.

Here are a few things to keep in mind to avoid becoming a victim of phishing scams:

  • Do not reveal sensitive information such as your bank account number, card numbers, PIN and OTP. Your bank or reputable financial company will never ask for such information by phone, email or post.
  • If someone calls you pretending to be your bank representative, verify their identity before continuing the conversation. Then visit the bank’s official website to call the main bank number. If the call was real, they can verify that.
  • Don’t entertain anyone who pressures you to act immediately to get a good loan offer. Don’t agree to pay an upfront fee to get a loan faster.
  • Stay away from lenders who are willing to disburse a loan with no due diligence, KYC, or background check required.
  • If you sign up on a financial institution‘s website, make sure it’s genuine. Pay close attention to the URL and make sure it’s secure (HTTPS, not just HTTP).

Pirate credit apps

Digital lending in India has exploded in the last five years. According to a 2021 Reserve Bank of India (RBI) report, the surge had multiplied twelvefold between 2017 and 2020, and the Covid-19 pandemic has only accelerated it.

The main reason lending apps are so popular in the country is that a large majority of Indians do not have access to formal sources of finance. Traditional lenders such as banks are reluctant to lend without collateral or a lack of credit history.

It is therefore natural for this group of borrowers to turn to alternatives such as lending apps that promise lucrative funding opportunities with little to no documentation required. While there is a plethora of legitimate lending apps that follow best practices and maintain transparency, their popularity has led to a huge increase in the emergence of lending app scams that are illegal and predatory.

In fact, according to the RBI working group report, between January and February 2021 almost half of the 1,100 digital rental apps available in India were illegal. This alarming figure is underpinned by the increase in the number of people being duped by such scams, with the app-based lenders uttering duplicity regarding the interest rate, term, etc. and then harassing their borrowers for loan repayments. In many extreme cases, harassment and shame at the hands of lenders or their third-party contractors have even resulted in deaths.

The most common lure of this scam are fake loan apps that advertise attractive offers that even promise zero percent interest for a limited time. You may even get a call telling you to act fast to get an instant loan with no due diligence or background check required. This should immediately raise a red flag, as any credible lender will typically verify your sources of income, existing loan commitments, credit history, and your ability to repay before extending a loan.

In some cases, you may be asked for a small upfront fee in order to get a lucrative loan, which is usually a sure sign of fraud.

Here’s how to avoid falling for predatory loan apps:

  • Do not download an unverified rental app from the App Store.
  • Avoid credit apps with low user ratings or negative reviews.
  • Avoid lending apps that don’t come with clear terms and fees and just promise quick loans.
  • Don’t go with a lender who doesn’t require documentation or background checks to give you a loan.
  • Avoid lending apps that are not affiliated with an RBI registered bank or NBFC as they are unregulated and illegal.
  • Check the lender’s website for a physical address, and if they don’t have one, avoid them.
  • If a lender is offering 0% or similar nominal interest rates, it may be a scam and you should do further research before applying.

What can protect you from potential scams

If you exercise due diligence in your lender selection and pay attention to the obvious red flags, you can ensure that you have a smooth and hassle-free loan experience. The more you research and back up your basics, the less chance there is that you will go with an unreliable lender.

However, it is important to remember that even reputable lending companies are not always superior to using predatory or fraudulent practices. For example, the RBI recently canceled the registration certificates of five non-bank financial corporations (NBFCs) for engaging in irregular lending practices, including charging excessive interest rates and harassing customers to collect loans.

The crackdown is evidence that even though regulatory measures apply to registered lenders like banks and NBFCs, predatory practices can still slip through the cracks and create difficult circumstances for borrowers.

It is important to know your rights and obligations as a borrower or prospective customer of a credit institution. For example, after you take out a loan, the lender cannot demand immediate repayment and must wait 60 to 120 days before classifying you as delinquent. but that doesn’t stop many unscrupulous lenders from demanding immediate repayment.

Here are a few things to keep in mind to protect yourself from fraudulent loans and loophole lenders:

  • Make sure the lender is registered with a regulator like the RBI and is following the regulatory protocol.
  • Make sure the lender has a publicly available dedicated complaints resolution system or customer hotline so you can contact them to resolve any issues.
  • Find out the exact interest rate cap for the category of loan and lender, and make sure what you’re being charged is within the limit.
  • Check if the lender has positive ratings and reviews online.
  • Check if there have been negative media reports about the lender in the past.
  • Make sure the lender doesn’t have a reputation for using extreme measures to collect in the event of a default.
  • Choose a lender that is transparent about their fees, practices, and policies.
  • Ensure full disclosure of interest rates, full EMI and repayment amount, and prepayment penalties.
  • Make sure the lender offers borrowers some level of protection and flexibility in terms of repayment and default.

Despite your best efforts, you could find yourself in a difficult situation if you become the target of any loan scam, be it a fraudulent loan, app fraud, phishing, robbery practices, or unscrupulous lenders.

Here’s what you can do if you suspect you’ve already been the victim of credit fraud:

  • Accurately record all transactions, including EMI payment receipts. Pursue legal action if the lender is found to be fraudulent.
  • File a police report for fraud with all the required details. You can also file a cyber crime report in case of fake credit app or online scam.
  • Monitor your accounts closely for suspicious or unauthorized activity that may have been triggered by a scammer.
  • Stop all unauthorized transactions by contacting your bank. According to RBI guidelines, if an illegal transaction is reported immediately if no fault of the account holder is found, the bank will replace the lost amount.
  • Block your checking account and card and transfer your funds to a new account if you suspect sensitive information has been compromised.

bottom line

When it comes to borrowing, the main thing to remember when looking for a loan or changing an offer is that it’s probably too good to be true. Unreasonably low interest rates, lack of due diligence on the part of the lender, extra offers to sweeten the deal, etc. are all red flags that you should carefully consider before committing to a loan option.

Additionally, choosing a lender after you’ve done your research and made sure they comply with regulatory requirements and best practices is a foolproof way to make your lending transparent and hassle-free.


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