Who are driving growth in digital loans?
Gen Z and millennials are driving high growth in digital loans. The Gen Z cohort comprises youngsters in the 18-25 age group, many of whom entered adulthood during the pandemic. Millennials fall between the age group 26-38.
According to a report by Redseer Strategy Consultants, digital lending in India is on the rise and set to constitute 5% of all retail loans disbursed by FY28.It has grown from 1.8% of total retail loans disbursed in FY22 to approximately 2.5% in FY24. The doubling of share from 2.5% to 5% by FY28 would follow a compounded annual growth rate of 40% in digital loans.
Also Read: RBI mulls to set up Digital India Trust Agency to check illegal lending apps
In FY24 alone, Gen Z borrowed between Rs 3.5-4 lakh crore while millennials took Rs 25-28 lakh crore of the total Rs 62 lakh crore disbursed in retail loans. Both groups prefer digital solutions for their financial needs due to the convenience and speed of new-age platforms.
The two groups, however, exhibit distinct borrowing habits. For Gen Z, personal loans constitute about 40% of their borrowing, often used for experiential expenses like travel and tech upgrades. In contrast, personal loans make up only 21% of millennials’ borrowing, indicating a lesser reliance on this category. According to the report, the difference in manner of spending reflects the distinct life stages and financial needs of the two age cohorts.
While it’s safe to access digital loan from authorised apps, many fall prey to the illegal ones.
Also Read: Bank frauds up nearly 300% in last two years, digital frauds up 708%: RBI
How illegal loan apps trap gullible customers
Approximately one-third of high-confidence customers in India lack sufficient knowledge about their digital loans and struggle to detect illegal lending apps. According to a report by FACE and MicroSave Consulting (MSC), while almost all customers are aware of the lender’s name, less than a third possess knowledge about crucial aspects such as the key fact statement and grievance redressal mechanism associated with digital loans. Over 57% of respondents prioritise checking the loan app’s affiliation with Non-Banking Financial Companies (NBFCs) or banks as the most critical verification factor. Additionally, 55% consider reviews and ratings when evaluating digital lending apps.
Often fraudsters circumvent app store verification to host their apps. These app stores may not have carefully laid down policies for onboarding, verification, disclosure, and prevention of abuse. Hence, fraudsters can upload their loan apps to such stores, the report said. Fraudsters can generate counterfeit evidence and bypass checks through impersonation. Such frauds can be hard to detect. Fraudsters fake their association with a legal entity and penetrate the app store due diligence. They share counterfeit partnership letters and registration certificates, create fraudulent websites under the guise of non-banking financial companies, and present their purported partnerships as evidence.
Only a continuous review process can help eliminate unauthorized loan apps, supported by internal monitoring, customer reporting, and collaboration with industry and law enforcement agencies.
How to spot fake lending apps
To protect yourself from fraudulent lending apps, consider the following indicators:
Verification: Always verify the authenticity of a lending app by checking the RBI website for licensed NBFCs/FIs or visiting fintech industry association websites. Ensure the app provides RBI-mandated Key Fact Statement (KFS) that details the loan’s terms and pricing.
Physical address: Legitimate businesses should have a verifiable physical office address. Be wary of apps that do not provide a clear location.
Website information: Check if the app has an official website with comprehensive information about its services. A lack of a credible online presence may be a red flag.
User reviews: Research user reviews before downloading any lending app. Genuine feedback can reveal the app’s reliability and customer service quality. Limited or suspicious reviews warrant caution.
Terms and conditions: Legitimate apps have clear terms and conditions outlining the borrowing process. Suspiciously vague or misleading terms could indicate a fraudulent app.
Governance information: Trustworthy businesses disclose information about their management team and governance structure. The absence of such details could be a warning sign.
Download sources: Avoid downloading apps from unofficial sources or direct APK links, which can pose security risks. Legitimate apps should be available on reputable app stores.
Marketing practices: Be cautious of apps promoted through dubious influencers or social media channels lacking credibility. Such promotions might be an attempt to mask potential risks.
Documentation requirements: Legitimate lenders require thorough documentation to verify borrowers. Apps requesting excessive personal information or lacking proper documentation requirements may be fraudulent.
7 ways to avoid loan frauds
Research the lender: Thoroughly investigate the lender to ensure they are accredited by the Reserve Bank of India or other regulatory bodies. Check their contact details, read client testimonials and complaints, and review their official website for loan options, charges, and interest rates.
Verify loan documentation: Carefully review all loan agreements before signing. Ensure that all terms, interest rates, repayment plans, and fees are clear and understood. Seek clarification from the lender or legal advice if anything is unclear.
Check personal information: Ensure that any personal information provided is accurate and current. Verify identity, residence, and employment details, and review credit reports for errors or fraudulent accounts. Be cautious of lenders requesting excessive personal details.
Be cautious of up-front fees: Avoid lenders asking for fees before loan approval or disbursement. Reputable lenders deduct processing fees from the loan amount. Be wary of offers guaranteeing approval or extending credit to those with poor or no credit history, as these may be scams.
Avoid high-pressure tactics: Steer clear of lenders using high-pressure tactics to rush decisions or force quick signatures. Legitimate lenders will give borrowers adequate time to review documents and make informed decisions.
Use secure networks: Apply for loans over secure websites and networks. Be cautious of phishing attempts and use strong passwords and two-factor authentication to protect personal and financial information.
Consult a legal advisor: Seek legal advice to fully understand loan terms and verify the lender’s legitimacy. A legal advisor can review agreements, identify potential issues, and inform borrowers of their legal rights and options
(With inputs from TOI)