Beware of Instant Loan Apps! Do not fall prey…

A lot of instant loan applications sprouted when the country started to get into a lockdown that was induced due to Covid-19 and people started to face a cash crunch.

What is the instant loan apps case?

It is a racket in which instant personal loans are offered through mobile apps at exorbitant interest rates by unauthorized lenders. Of the numerous apps that are available on Google PlayStore, most do not have any tie-up with any bank or Non-Banking Financial Institution. A customer can avail of a loan within a few minutes after uploading personal details, three months’ bank statement, Aadhar card copy, and PAN card copy on the app. Loans from as less as Rs 1,000 to Rs 50,000 can be availed for seven days.

The rate of interest is as high as a percent with exorbitant fees. For instance, if a person seeks a loan of Rs 5,000, the app company will charge Rs 1,180 as processing fees and GST and credit only Rs 3,820. The lending companies have call centers in Hyderabad and Gurugram from tele-callers and recovery agents interact with burrowers. Many people who lost their jobs during the pandemic or who require money urgently borrowed money from the apps and got caught up in a vicious cycle of the debt trap.

How do they operate?

After a customer downloads an app and uploads the documents demanded, the loan amount is credited into the bank account. The phone number of the customer as well as the numbers of his family members are shared by the app company with others. After a customer avails one loan, telecallers and agents of about 20-30 similar apps call the customers and lure them into availing more loans, saying they are eligible because their credentials have been verified by the company from which they borrowed the first loan. Many customers fell for this trick and ended borrowing up to Rs 50,000. While the interest rate is 35 percent, after the due date, a flat Rs 3,000 penalty per day is levied on the customer. Many customers end up borrowing more to repay a previous instant loan.

How were the victims affected?

Apart from levying hefty penalties for failure or delay in repayment of the loan, the agents use a combination of coercion, blackmail, and threats. After issuing loans to customers from their app for seven days, they divide all the customers into different categories or buckets. On a due date, it is called a D-0 bucket; after the due date from day 1 to day 3, it is an S1 bucket; from day 4 to 10, it is an S2 bucket; and from day 11 to 30, it is an S3 bucket.

The treatment of a customer depends on which bucket the customer is in. Immediately after the due date, a customer will be harassed with dozens of calls. During the S2 bucket, abusive calls will be made to family members. Later, threats and blackmail start. Finally, they access the contacts of relatives and friends of the customers and send them WhatsApp messages defaming the defaulter. Unable to bear the humiliation while two persons have died by suicide, several people lodged police complaints after which Cyberabad Police busted the racket. The Andhra Pradesh Police has also issued an advisory not to avail loans from these 30 mobile apps.