Your Money: Borrowing online? Vet the lender first, avoid easy loans from entities operating through phone apps

financialexpress.com:

India has had a payments revolution with UPI. Now, thanks to India’s digital public goods, another financial revolution is underway. This time, it’s in lending. Aadhaar led the Gen 1 public goods. Gen 2 has DigiLocker, Account Aggregator, and Video KYC. Together, these are enabling lending with speed, cost savings, and convenience.

Banks, fintechs, and regulators have worked together to democratise access to credit. As digital lending’s popularity soars, we also see risks. Often, the risks emanate from the unethical practices of unregulated lenders. Let’s look at what to know when borrowing online.

Your best source of financing is what the Reserve Bank of India calls a regulated entity (RE). For small borrowers, an RE would be a bank or an NBFC. REs are bound by the RBI’s lending regulations. Avoid borrowing from unregulated digital lenders. There’s no dearth of such lenders operating via phone apps. Recently, the RBI has called them out for high charges, unethical recovery practices, and illegal breaches of the customer’s privacy.

Typically, your loan eligibility is influenced by your income and credit score. If you have stable income and a good score, borrow from a bank. If you have lower eligibility, borrow from an NBFC.

If you’re more creditworthy, you get to pay a lower rate of interest. All your charges are summarised in your loan key fact statement which must also include your annual interest rate. There may also be charges for loan processing, late payments, and prepayments.

REs are required by the RBI to treat customer data with extreme care. For loan disbursal, data can be collected with the customer’s consent. The consent is also revocable. Data can be shared with third parties (such as loan service providers