How to Identify and Avoid Personal Loan Scams in India?

The pandemic that has swept the world has resulted in a huge financial crisis for many households. The need for personal loan and finance to stem the short term crisis has been increasing. Personal loans are in demand due to a variety of reasons including the revival of business as well as repayment of other loans such as housing loans. 

However this need has also given rise to several incidents of scamming. Scammers have taken advantage of those in need and have robbed them of their hard earned money.

Therefore, it is important for prospective borrowers to know how to spot such personal loan scams and save oneself from heartbreak and loss. 

Here are some red flags which can indicate if the loan being offered to you is a personal loan scam:

1. Loan Fee:

One of the very first things that should raise a huge red flag is if the person offering the personal loan to you demands an upfront loan fee. Any personal loan would involve a loan processing fee however the same is often deducted from the total disbursement of the personal loan. For instance, customers of SMFG India Credit are charged processing fees of Up to 5% of the total loan amount + GST. Thus, if a customer is charged a processing fee of Up to 5% of the total loan amount + GST, for a loan amount of INR 100,000 then around INR 94,000 will be disbursed to his bank account upon successful loan approval. Financial Institutions will never ask any customer to deposit any money upfront without even disbursing the loan. If you are being offered a loan that has such a requirement, that should be the first indication that the loan being offered to you is a scam.

2. No Credit Verification:

Financial Institutions are very strict in offering personal loans concerning credit verification. Personal Loan eligibility is checked by verifying the loan repayment history as well as existing loans of the person to whom the loan is being offered. Credit history of a borrower plays an important role in determining the interest rate being offered. If the lender doesn’t demand your credit history, that can be considered as another red flag.

3. Limited Period Offer:

A loan that is being granted to a consumer or customer is generally a standing offer and does not expire within a few days or hours. In a situation wherein the loan provider or customer care executive is putting pressure on you to decide on the loan within a limited period, there is a higher chance of the transaction being a personal loan scam.

Apart from the above circumstances, customers can keep an eye on other relevant factors such as:

• The site of the loan provider is not secured i.e. it is merely HTTP and not HTTPS.
• The Loan provider is either offering an absurdly low rate loan.
• The lender is willing to guarantee that your loan will be approved.
• The lender does not require any document from your end.
• The lender demands an upfront fee for processing / GST / service fees and tries to convince you that making this payment will make your loan cheaper.

Instant personal loans are the flavor of today’s era and many new players have entered such an arena. In such circumstances, it is the responsibility of the customers to be careful as to whom they are dealing with. In the need of obtaining quick loans or low interest rate loans, the customer might end up losing their hard-earned money. Such a ploy is becoming increasingly normal today in today’s digital era.

Must Read: How to Avoid the Rejection of Your Personal Loan Application

In case a customer is skeptical of whether the loan being offered to them is genuine or wants to avoid any personal loan scam, they may try the following methods to avoid such scams:

1. The customer must insist on verifying the physical office of the lender. In most circumstances, such an office won’t exist and the customer will be able to avoid such personal loan scams.
2. The customer must insist on reading the fine print of the terms and conditions of the loan being offered.
3. The customer must refuse to deposit money in any account or through any other digital medium and insist on the amount being deducted from the disbursal amount.
4. You can also check about the lender online - reputed financial institutions have to be registered with the government. They need to have a secure website with a designated contact centre and physical address (which should be legitimate and verifiable).

The increasing growth of the digital medium in the financial sector is both a boon and a curse. In such circumstances, with an increasing number of scamsters looking to con innocent customers, it is better to be cautious and not get trapped in the lure of cheap and easy loans. There are no free lunches available in the world and that should be kept in mind by all customers. Customers should not be lured by scams and instead should opt for well-known and reputed financial institutions to ensure that they are not a victim of personal loan scams.

Instant Personal Loan Apps

Sometimes, the scammer may operate through a personal loan app with no physical offices and registered contact offices. Such loans come with huge interest rates, which is not usually intimated at the beginning of the process and kept hidden. The fraudulent apps may use a complicated scheme to dupre borrowers and swindle them out of huge amounts of money, which may sometimes also involve digital transactions to untraceable accounts. 

Many unregistered loan apps are working around and have already drained crores from borrowers. 

Following are the red flags to identify a personal loan app scam:

• It is not registered with Reserve Bank of India and is not associated with any known bank or NBFC It doesn’t want to check your credit report before approval of the loan
• They  want you to act immediately on the terms of the loan
• The loan app is unverified in the app store
• The app itself or the website is not secure (HTTPS) and doesn’t contain proper information
• The app doesn’t reveal  the details of the loan terms and conditions
• Apart from the app, the lender doesn’t have a physical office address
• The app asks you to provide a processing fee in advance before even collecting your documents or disbursing the loan
• The app promises a 0% interest free loan which sounds too good to be true. 

What to do, if you have become a victim of an instant personal loan app scam?

In case you have become a victim of an unauthorised lending app, then don’t panic. First, reach out to the nearby police station to report the case, and after they have taken the necessary information, uninstall the mobile application immediately. You’ll be saved from the harassment and trouble. 

Never download personal loan apps which are unauthorised and always check users rating and review before downloading. And, before signing or accepting the terms of the loan, check your EMI using a personal loan EMI calculator and compare it with the EMI amount given by the lender.