Instant loan apps: Here’s what you should know about risks and precautions to take

With the emergence of instant loan apps, accessing loan offers and getting approval has become faster compared to the earlier process of physical verifications.

However, as with any financial service, it’s important to remain cautious about the safety and security of your financial information while applying for a loan.

Are instant loan apps safe? What are the inherent risks? Let’s take a look at the instant loan risks associated with these applications and how to navigate this digital landscape safely.

The rise of instant loan apps

A couple of decades ago, securing a personal loan from traditional banks was very tough. Today, instant loan apps have made it possible for users to obtain funding within minutes.

They offer various advantages such as competitive rates, quick processing times, and reduced borrower requirements. For example, Moneycontrol provides access to instant loans up to Rs 15 lakhs in partnership with four lenders through its app and website. With a fully digital process, users can secure a personal or business loan with interest rates starting at 12% per annum and with no hidden charges.

Understanding instant loan risks

While instant loan apps present many benefits, they may carry potential risks. The instant loan app users should remain alert about a few risk factors while applying for new credit instruments:

• Data breaches: Despite advancements in security measures, data breaches can occur. Fraudsters can access your confidential information, leading to financial loss and identity theft.


• Identity theft: If your personal information is compromised, criminals may misuse your identity for fraudulent activities, potentially resulting in a significant financial and legal burden.


• Phishing scams: Scammers often create fake loan apps to lure unsuspecting individuals into providing personal and financial information. Users must be vigilant and verify the legitimacy of any app before sharing sensitive data.


• Spyware and malware: Malicious software can compromise the security of your device, leading to unauthorised access to personal information. It’s important to ensure that your device is secure before downloading any financial app.


• Unregulated lenders: Some apps operate without the necessary regulatory licenses, increasing the risk for borrowers. The Reserve Bank of India (RBI) regulates financial institutions in India, and using an unregulated loan app can expose you to financial frauds. It’s advisable to use the instant loan apps from recognised lenders and organisations.

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What you must do before applying for a loan

To ensure a safe borrowing experience with instant loan apps, it is essential to take proactive measures. Here’s what you must keep in mind:

• Verify website security: Lenders are responsible for safeguarding your confidential information. Although no online platform is entirely immune to cyber-attacks, many instant loan apps implement advanced encryption systems comparable to those used by banks. This ensures that personal and financial information remains secure during transactions.


• Regulatory authorisation: Before applying for an online personal loan, it’s essential to check whether the app operates under the proper regulatory authorisation. RBI-approved apps are more likely to adhere to stringent security standards, thereby providing a safer borrowing experience.


• Transparency and clarity: A credible online personal loan app should be transparent about its interest rate, fees and other terms and conditions. Always read the fine print to avoid hidden charges that could surprise you later.


• Data privacy policies: Your data security is paramount when applying for loans online. Reliable loan apps have strong security measures in place and should provide clear statements regarding their data protection practices.


• Customer support: An accessible customer support system is a hallmark of trustworthy online personal loan apps. This service allows borrowers to address concerns or queries, further establishing the app's credibility.


• Reviews and recommendations: Seek recommendations from friends or family who have used online personal loan apps. Their experiences can help you in making an informed decision. In addition, also check the reviews and ratings of the lender on the app. Platforms like Google Play Store offer insights from existing users.


• Verify physical and online presence: Check the legitimacy of an instant loan app by verifying its physical and online presence. Legitimate lenders should provide clear contact information, including a name, address, phone number and email.

Common mistakes to avoid while using an instant loan app

While looking for a safe online personal loan, it’s important to avoid common pitfalls that can lead to a problematic borrowing experience:

• High fees and interest rates: Be cautious of loans with excessive fees that could strain your finances.


• Borrowing more than necessary: Only borrow what you need to avoid accumulating unnecessary debt.


• Unlicensed or unregulated lenders: Steer clear of lenders without proper licenses or oversight.
  Hidden charges: Always be on the lookout for hidden fees buried in the loan agreement.


• Unrealistic repayment terms: Avoid loans with unmanageable repayment terms that could lead to financial difficulties.


• Predatory lending practices: Watch out for lenders who use aggressive sales tactics or target vulnerable borrowers.


• Skipping the fine print: Always read and understand the loan agreement’s terms to avoid surprises later.

ALSO READ: Actual Cost of a Personal Loan: Don’t ignore these fees and charges

Conclusion

In general, online personal loans offer a safe avenue for obtaining funds as long as you take necessary precautions and ensure that the lender’s website is secure. When your information is encrypted, transmitting it online can be just as safe as providing it to a banker in person.

Moneycontrol offers a 100% digital personal loan application process from its lending partners. You can get your loan in just three easy steps – entering personal details, KYC verification and setting up EMI payments.