5 red flags to watch before taking a personal loan from a digital lending app | Mint

Digital lending applications have transformed the way people access credit in the country. With just a few taps on a mobile device, any one can apply for and receive personal loans in seamless fashion without visiting a banking institution.

Still, this comfort and convenience comes with its own set of risks. Several lesser known, unregulated platforms are now active in the lending market. Due to the same, many borrowers fall prey to hidden charges, data misuse and harassment related to recoveries. Here are five red flags to watch out for before you borrow via any digital lending app:

1. The app is not regulated by the RBI

The most important aspect of them all is for you to check whether the lending application you are aiming to secure a personal loan from is backed by an RBI registered banking institution or NBFC. Many unregulated applications operate in grey areas and do not follow standing lending rules and regulations.

Amit Bansal, Founder, BharatLoan says, “Before opting for a personal loan through any digital lending app, users must exercise caution. Apps not regulated by the RBI often lack transparency in loan terms and may charge hidden fees. Granting excessive access to personal data can lead to misuse, while poor customer support and lack of grievance redressal expose borrowers to risks. Sudden loan disbursals without consent or threats from unverified recovery agents are serious red flags. Even the app’s design if it’s unprofessional or sketchy can be a signal to step back and reconsider the platform’s credibility,”

2. Unclear or hidden charges

It is important to clearly acknowledge the fact that a genuine lending platform will clearly mention the applicable interest rates, processing fee, loan repayment tenure and schedule along with all other associated charges. The basic idea of all legitimate platforms will always be to serve its customers with absolute transparency and clarity. In case any of these details are vague or missing, then it is a serious red flag.

3. Excessive permissions and data access

Applications that request access to private contacts, media files, photos or real time location should be treated with caution. Your personal data is extremely significant for your privacy. It can be misused especially if the application is not bound by data protection laws and regulations by the central government.

4. Poor reviews or no track record

Before submitting your personal loan application through any particular lending application, do carefully review the presence of the application on leading App stores and social media platforms. A lack of user reviews, feedback or too many unresolved complaints should be taken as warning signs seriously.

5. No customer support or helpdesk

Reputable financial institutions always provide proper grievance redressal and customer service platforms. That is why applications with no helpline, support email or clearly defined office address should be looked at carefully and avoided in most of the cases.

Ankit Mehra, CEO of GyanDhan, discusses the significance of the same, saying “Digital lending apps can be tricky. Always check if the lender is regulated, review the APR, and understand what charges will be deducted at disbursal. Read recent user reviews, know your repayment terms, and beware of apps asking for excessive permissions. What sounds friendly upfront can change quickly.”

Hence, as a well informed borrower, it is your responsibility to stay vigilant and conduct proper due diligence before submitting your personal loan application with any particular financial institution showing the willingness to provide you with funds. A proper background check can save you from facing financial and personal distress when choosing a reputable digital lending application.

For all personal finance updates, visit here.

Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.