Three Important Things to Know Before Borrowing on Digital Lending Apps

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Three Important Things to Know Before Borrowing on Digital Lending Apps

Digital lending is one of the fastest growing ways to borrow because it is more convenient and primarily online. Moreover, loans are disbursed faster through online digital lending applications compared to traditional modes.

But there are concerns about unbridled third-party engagement, mis-selling, breaches of data privacy, unfair business conduct, charging exorbitant interest rates, and unscrupulous collection practices. ethics, according to RBI.

The government is increasingly concerned about the proliferation of “illegal digital lending apps” as cases of predatory lending and collection practices increase. Finance Minister Nirmala Sitharaman recently chaired a meeting on “illegal lending apps and outlined several steps to prevent the operations of such illegal lending apps” and the RBI on September 2 issued guidelines on digital lending in the framework of measures to regulate the industry.

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RBI guidelines issued on September 2, 2022 apply to all lenders, including banks, non-bank finance companies, co-operative banks and housing finance companies, to protect borrower data. Most lending applications or more formally – Lending Service Providers (LSPs) – do not lend from their own balance sheets, but act as outsourcing agents for banks and non-bank financial companies. In this regard, the guidelines apply to all entities engaged in the digital lending business.

Those who have applied for or are considering taking out loans through such a mode should check a few points:

Charges: It is important to check the fine print such as interest rate or cost of borrowing, application fees, processing fees, late payment fees, etc. It is important to read the factual statement carefully before signing the digital dotted line.

Statement of key fact: Digital lenders release a key factual statement to borrowers before sanctioning a loan. Details such as the RBI regulated entity originally providing the loan, loan amount, insurance charges, term, repayment frequency, installments, etc. Other details such as cooling-off period, loan recovery mechanism, grievance officer details are also mentioned. The borrower is not required to pay any charges which are not mentioned in the statement of essential facts.

Check your mail: Once the loan is approved, lenders are required to send the Statement of Key Facts to the borrower’s registered email or SMS. Also, the lender is required to acknowledge any refunds made or EMIs paid by the borrower via email or SMS.

Cooling period: After a loan is approved, the borrower has a certain period of time during which he can exit the loan by repaying the principal amount together with the proportional interest rate. While banks and NBFCs are free to set the cooling period, it must be at least 1 day.

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