Things to keep in mind before you apply for digital loan!

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During COVID pandemic, several apps emerged in India that provided instant loans. Due to the challenges posed by COVID and resultant lockdown, people engulfed in economic difficulties became dependent on these apps. The estimate of the popularity of these apps in the country can be gauged from the fact that, while, the digital lending market was only worth 9 billion dollars in 2012, it grew over to 150 billion dollars in 2020. It increased more than 15 times. It is estimated to reach around 350 billion dollars by the end of 2023.

According to a report from the Fintech Association for Consumer Empowerment i.e.(FACE), the digital lending market in India is consistently growing. In FY23, digital loans amounting to 92,848 crore rupees were disbursed, compared to only 35,490 crore rupees in the previous year.

Generation Z, that means individuals born after 1996, is at the forefront of these digital loans. This generation prefers not to visit bank branches and go through lengthy paperwork to secure a loan. Digital loans are easily accessible from the comfort of their homes. Such loans have become a preference for this generation.

Additionally, individuals with poor credit history or a low credit score, find it difficult to secure loans from traditional banks. So, they opt for digital loans. Due to these reasons, digital loans are rapidly gaining popularity.

However, before availing a digital loan, it is important to thoroughly understand its terms and conditions. Because, while obtaining a digital loan is easy, escaping its pitfalls can be quite challenging.

According to Founder of FREED, Ritesh Shrivastav, , “Digital loans can be risky because in India, the Annual Percentage Rate or (APR) of these loans can range from 36 to 48 percent. This means that on a loan of every 100 rupees, you may have to pay an annual interest of up to 48 rupees. In addition, lenders and their collection agents can constantly bother you with phone calls and messages if you miss payments.”

Financial planner Nema Chhaya Buch has advised that short-term instant loans are easily available, but one should not apply for those without careful consideration. Only when you have no other options and have a critical need then only opt for such loans. Also, one should ensure that the loan amount is not excessive. One should Check the interest rate, assess the credit history, find out the repayment period, and then decide if you can afford such loans. Before applying for an instant loan, thoroughly evaluate the risks, as it can have significant consequences later on.”

Therefore, whenever you take a digital loan, keep in mind a few things. First, ensure that the entity from which you are taking the loan is regulated. If it is a regulated entity, such as a bank or NBFC, it is safer to take a loan from there.A regulated entity means its is under RBI regulation. From the customer’s perspective, one should also check the ratings on Google Play Store. This will help you filter those apps. Only take a digital loan in case of a real emergency; otherwise, try to avoid it.