How Can You detect a Fraudulent Lender?

Like most sectors, technology has transformed the financial services industry too. These technology-enabled financial companies, as a whole, are popularly known as fintech companies. Lenders brought loans right to our screens and in some cases, right to our doorstep. It did away with lengthy and cumbersome application forms, a complicated KYC process, and multiple visits to a loan officer. With people getting used to such easy money, it has also given rise to bank loan frauds and frauds on online loans.

Especially in the last couple of years when many households faced the loss of jobs and businesses, people have turned to these lenders. Financing scams and loan frauds took advantage of this desperation of people to secure financing. Loan Application frauds are nothing new but the financial industry is now grappling with a different kind of scam. These financing scams are most prevalent through loan apps. And if customers are not careful in performing their due diligence before applying for a loan, they could easily fall prey to these dubious offers.

What is a Loan Fraud by a Lender?

Simply put, it is when a lender takes advantage of the financial system to fraudulently dupe loan seekers to make quick money. Fraudsters could also use sensitive customer information to commit other frauds like fake loan applications on behalf of unsuspecting individuals. These are usually small loans that could go undetected for a long time until debts start piling against the victims.

Common Types of Financing Scams

Scams perpetrated via loan offers are not a recent phenomenon. However, with the advent of ease of applying for a loan, financing scams have also increased considerably. Here we look at two of the most common types of financing scams.

• Online Personal Loans Frauds: Online personal loans are possibly the biggest target of fraudsters. Many sham loan apps offer personal loans at unbelievably low-interest rates when genuine unsecured personal loans have very high-interest rates. They call up unsuspecting people or send messages and emails to people in urgent need of cash with offers of instant availability of loans. These online personal loan frauds also happen via Buy Now Pay Later schemes and on-demand digital loans via loan apps. There are more than 1100 digital lending apps available on Indian app stores, out of which more than 600 loan apps were recently found unlawful.

• Mortgage Frauds: Mortgage fraud or home loan fraud as it is more commonly known can happen in many ways. Fraudsters defraud lenders by committing bank loan fraud by stealing their identities and using confidential information of unsuspecting victims. Or, they scam people by offering them to get cheap and hassle-free home loans. These scammers pose as authorized dealers of banks or finance companies and lure victims with many perks, discounts on interest rates, etc. They force these victims to go through them to secure a mortgage loan rather than approaching a bank or registered lender.

How to Detect a Fraudulent Lender? Red Flags to look out for

If a lender offers perks and schemes that are too good to be true, they probably are. Lenders today offer a variety of offline and digital loans. Although most lenders are credible, genuine, and well-regulated, there exist fraudsters who manage to slip through the cracks of the financial system. A few checks and balances conducted by a potential borrower could help prevent such loan frauds.

• Credibility of a Lender: A customer must verify the credibility of the lender he/she wishes to borrow from. Any lender operating in India must be registered with the regulatory bodies of the Reserve Bank of India (RBI) and the Ministry of Finance. All information regarding that particular lender, including the registration number, physical address, phone numbers, and email ID, is available on their website. Customers can cross-check these details on the Ministry of Corporate Affairs website to avoid financing scams.

• Verification of Loan Apps and Websites: In a loan app scam, the app or website is not secure (the URL should be HTTPS, not just HTTP), is unverified on the app store or detailed loan terms are unavailable.

• Borrower’s Credit History: Accessing and verifying a borrower’s credit history is an important step in granting a loan. It is true more for unsecured loans such as online personal loans. A lender that doesn’t ask for your credit history, CIBIL score, and/or past repayment history if any, is possibly involved in a financial scam.

• Urgency and Pressure tactics: A fraudster would always want to rob individuals of their hard-earned money as quickly as possible by scamming them with financing offers. They pressurize people to act urgently and sometimes threaten to cancel the loan. Genuine lenders give customers enough time to decide and act.

• Limited Period Offer: This is possibly the most used catchphrase in a financing scam. They entice gullible people with Limited Period Offers of unbelievably low-interest rates, guaranteed loan approvals, and no to minimum documentation.

• Upfront Processing/Loan Fee: A lender demanding an advance processing fee or a loan fee to start the loan process is a huge indicator of a potential loan fraud. The processing fee levied by a genuine lender is often deducted from the total loan disbursement.

Ways to Protect Yourself from Loan Frauds

To avoid falling prey to loan frauds, it is advisable to be alert and aware.

• Don’t ignore communication from banks and genuine lenders who routinely share tips on loan fraud protection.

• Never share confidential such as bank account numbers, card numbers, PIN, and OTP over a call, text, or email.

• Always document your communication with the lender. It could be used as proof in case of fraud.

• Don’t panic if you have been scammed. File a complaint on the Cyber Crime website and also file an FIR at your nearest police station’s Cyber Cell.

It is highly recommended that you apply for a loan only from reputed lenders like Muthoot Finance. With decades-long experience and reputation, their online personal loans guarantee one thing-peace of mind. Be sure to always compare loan terms from various lenders before deciding on one. And finally, remember that if an offer sounds too good to be true, it probably is.