I have been seeing a lot of instant loan apps offering quick approvals and minimal paperwork. While they seem convenient, I’m not sure how safe or transparent these platforms are. What should I keep in mind before using tech-based loan services to avoid falling into a trap or facing issues later?

Reply by Akash Bararia, head of sales finance, HDB Financial Services

With the increasing use of technology in financial services, many borrowers are turning to digital platforms and mobile apps for instant loans. While these platforms offer speed and convenience, borrowers must take certain steps to ensure transparency and safety in the borrowing process.

Key considerations -

• Check the lender’s regulatory status

Before proceeding with any digital loan, borrowers should verify if the lending platform is directly regulated by the Reserve Bank of India (RBI) or is working in partnership with a registered bank or non-banking financial company (NBFC). This information should be clearly disclosed on the app or website. Avoid platforms that do not mention their association with an RBI-regulated entity.

• Understand the terms clearly

Before accepting any loan offer, read the terms and conditions in detail. Make sure you are aware of the interest rates, tenure, processing fees, foreclosure charges, late payment penalties, and other applicable costs. Transparent lenders will clearly display all charges with no hidden fees.

• Demand key fact statements (KFS)

Before committing to a loan, insist on receiving a comprehensive Key Fact Statement. This standardised document should clearly outline the all-in cost of the loan, including the interest rate (and whether it's fixed or floating), all applicable fees (processing, documentation, etc.), the repayment schedule, and any penalties for late payments or prepayment. Review this document meticulously.

• Be careful with app permissions

Many loan apps request access to personal data such as contacts, call logs, photos, and messages. These permissions are not necessary to process a loan and could lead to misuse of personal information. Borrowers should only install apps from trusted sources like the Google Play Store or Apple App Store, and avoid granting unnecessary permissions.

• Enable digital safety features

Activate two-factor authentication (2FA) where available. Set strong, unique passwords for loan apps and banking accounts, and update them regularly. Use biometric verification for an extra layer of protection.

• Use the grievance redressal mechanism

If there is any issue related to the loan or service, borrowers should first contact the lender’s grievance redressal officer. Details of this officer must be available on the platform. If the issue remains unresolved, borrowers can escalate it to the RBI’s Complaint Management System at cms.rbi.org.in, which is the official platform for resolving complaints against banks and NBFCs.

• Avoid over-borrowing

It is advisable not to take multiple short-term loans from different platforms at once, as this can lead to a debt trap. Borrowers should assess their repayment capacity before applying and ensure that the EMI fits within their monthly budget.

• Monitor credit report

Regularly checking one’s credit report helps identify unauthorised loans or reporting errors. A healthy credit report also improves future borrowing terms and reduces the chances of loan rejection.

By following these steps, borrowers can make informed decisions while using tech-driven loan services and protect themselves from fraud, misuse, and hidden charges.

(The views expressed by the expert are solely his own)