Instant personal loans in 10 minutes: Convenience or a dangerous trap? | Mint

In India, instant personal loans, often disbursed within 10 minutes—have surged in popularity due to their swift approval processes, rapid growth in information and technology tools and minimal documentation requirements.

Now, this rapid access to credit has been facilitated by digital lending platforms and fintech innovations. However, concerns have arisen regarding the safety of these loans. Issues such as unregulated lenders, unfairly high-interest rates, and data privacy risks have been highlighted by financial authorities and consumer rights organisations.

Aspirational borrowers are advised to exercise caution and thoroughly understand the credibility of the lending platforms they are interacting with before proceeding. The management of your credit score is of immense importance in such an environment. Now, there are several common safety issues and hidden traps and hidden charges that the borrower needs to be aware of before reaching out to a lending institution:

Convenience and risks

Instant loan applications are a hassle-free and convenient way of availing loans, with customers being able to do so online with less documentation. This access has fuelled their growth, but is also a threat in the shape of cost of money and over-borrowing. The desire to borrow more than required can lead to debt traps, in which the borrowers take more loans to pay off existing ones, leading to a debt trap. Also, exorbitant interest rates, high EMIs and hidden fees can significantly increase the amount to be paid, leading to financial burden on the borrowers. That is why it is always prudent to be careful in this regard.

Data security and phishing scams

Another extremely important risk that goes hand in hand with instant loan applications is data security. Several applications ask people to provide sensitive financial and personal information that can be susceptible and prone to cyber hackers, phishing scams, and identity theft unless they are secured.

For several technology based hackers and computer experts it is a common practice now-a-days to develop a fake loan application with the intention of defrauding innocent individuals and obtaining their personal and financial information, causing losses and harassment. Customers must verify any application properly before entering any confidential information.

Regulatory environment and future outlook

The Reserve Bank of India (RBI) is taking that extra step towards encouraging responsible lending habits and data protection for the instant credit sector. While credit growth witnessed runaway growth earlier, RBI enhanced risk weights in unsecured consumer loans to check risk exposure.

Since the private loan market would grow at a CAGR of 26.55% between FY2025-FY2032 as detailed by Markets and Data, one must hence exercise caution and choose genuine, RBI-approved lenders to avoid financial strain, unfairly high interest rates, and non-flexible repayment terms later.

Safe borrowing precautions

Therefore, to conclude, aspirational borrowers of instant personal loans must take some important precautions. This includes: checking the credibility of loan applications, loan repayment terms, RBI registration, and proper data security procedures. Phishing attacks and similar loan apps must be avoided as well. If all these precautions are taken, risks can be reduced while availing instant loans for financial needs.

(Disclaimer: Money borrowing is risky. So utmost caution is advised.)