12 Tips to Protect Yourself from Fraud While Taking an Online Loan

When used smartly and responsibly, a loan is a great way of generating cash and managing one’s finances. Financial institutions understood this growing demand and started offering a plethora of loan products such as personal loans, home loans, gold loans, etc. These technology-enabled ‘fintech’ companies brought loans right to our screens and in some cases, right to our doorstep. They 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 loan frauds.

What is a Loan Fraud by a Lender?

Loan fraud happens 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 Loan Frauds

Scams perpetrated via loan offers are not a recent phenomenon. However, with the advent of ease of applying for a loan, loan frauds 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. 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 the 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 loan 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 Protect Yourself from Online Loan Fraud?

Lenders today offer a variety of offline and online 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 fraud.

• Credibility of a Lender: You must verify the credibility of the lender before you apply for a loan. All information regarding registered lenders, including the registration number, physical address, phone numbers, and email ID, is available on the website of the Reserve Bank of India (RBI) and the Ministry of Finance. You can cross-check these details on the Ministry of Corporate Affairs website when applying for an online loan.

• 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) and 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 loan fraud. They entice gullible people with Limited Period Offers of unbelievably low loan 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 potential loan fraud. The processing fee levied post loan application by a genuine lender is often deducted from the total loan disbursement.

• Security of Online Credentials: Always keep your bank’s mobile application updated. Be careful of properly logging out after using online banking or a loan website.

• Public Networks: Avoid using sensitive financial websites and mobile applications on a public network as they are not secure and there could be a breach of your data.

• Authenticity of Communication: Beware of clicking on unverified links, mentioned in a genuine-looking notification. Don’t ignore communication from banks and genuine lenders who routinely share tips on loan fraud protection.

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

• Keep Documented Proof: Always document your communication with the lender from loan application onwards. It could be used as proof in case of fraud.

• Reporting a Financial Crime: 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