BEWARE! 5 things to keep in mind before borrowing money from loan apps

Amrutha Pagad
Amrutha PagadApr 20, 2022 | 16:23

BEWARE! 5 things to keep in mind before borrowing money from loan apps

There are just a few more days left to go for the month, till the payday, but you have used up every single penny in your account, perhaps living the YOLO way. It’s just a matter of a few days, you don’t even need a massive loan, just enough to get you by the month.

What would you do in this situation?


Asking from family would earn most of us an earful on the importance of savings and make you look irresponsible. Friends? Hmm… it’s a bit embarrassing to ask and most of them would be in no condition themselves to lend. You peek at your phone – the answer to all your problems.

LOAN APPS, they are easy and instant. One touch and you are downloading from the myriad options like EarlySalary, One Cash, MoneyTap, Niro, etc, etc, etc…

loan-app-1-647_042022014921.jpgLoan app kills another in Hyderabad. Representative Photo: Creative Commons

You tap away at ‘allow access’ at everything – your contacts, GALLERY, activity on your phone, EVERYTHING as you set up the app. Then, you fill in the details asked, your Aadhaar, PAN, address, the amount you need (say Rs 5,000) and click apply. And done! You may see that your account is credited with Rs 5,000.

But an instant loan from apps comes with a catch; in fact a lot of catches!

On April 18, 2022, Monday, a youth in Hyderabad, Telangana hanged himself to death. The reason? He was being harassed by loan app operators over the payment of Rs 12,000 loan he had borrowed. He had paid back Rs 4,000 through EMIs, but was yet to repay the full amount. While he was prepared to repay the loan, he wasn’t expecting the operators to call his friends and families and socially humiliate him.


Imagine your friends and family members, without your knowledge, getting a call from loan app operators out of the blue, being asked to repay a loan that you took!

It’s not the first time that an instant loan app harassment case has resulted in suicide. There have been multiple reports that emerged over the years, especially during the pandemic period, about such cases. In some cases, loan apps harassed borrowers even after they repaid the whole amount. In other cases, operators used morphed pictures of borrowers and of people on their contact list to harass them.

So, what should you know before you borrow from an instant loan app?   


The interest rate of various loan apps varies from each app. However, the rate is calculated per month, sometimes per week (if the loan amount is taken for a week’s time) which keeps on adding till it is repaid. Nonetheless, the interest rate is much higher than what banks offer on usual loans.

Some charge 12-36% of interest on instant loans. So, if you take Rs 5,000:

  • 12% interest will be Rs 600. The amount to be repaid will be Rs 5,600.
  • 36% will be Rs 1,800, so the final amount due will be Rs 6,800.


Loan apps are also notorious for charging exorbitant processing and service fees. In one case of a now-banned Cash Advance Ha app, for a Rs 6,000 loan:

  • A processing fee of Rs 2,300 would be charged 
  • The final amount disbursed would be only Rs 3,700
  • But you would need to repay Rs 6,000 plus interest

The loan apps also impose heavy penalties on a daily basis if you fail to repay an amount. So, you might end up paying for the apps much much more than what you borrowed.


In one case, a man who had never borrowed from any loan app was harassed by loan app operators to repay a due amount. After investigation, it was found that his neighbour had defaulted on the loan and the victim’s contact number was on his contact list.

In another case, a woman was harassed with her morphed photos to repay a loan one of her colleagues had borrowed.

The shadiest part of loan apps is when these apps – even those considered ‘okay’ - demand access to the borrower’s contact list and gallery on downloading the app. This data is later used for harassment purposes. From the recent Hyderabad case to several other cases, loan app operators call random people from the borrower’s contact list, harassing them about the borrower’s loan.

They also use the borrower’s gallery photos to morph pictures into pornographic content and circulate the fake images in a defamation campaign.

So before you click on ‘allow access’, think again.


It doesn’t matter if you took any loan from a loan app or even repaid the entire amount after taking the loan. Your worries won’t end there; because in a number of cases, loan app operators have resorted to extortion and fraud using the data stolen from borrower’s phones. Borrowers have been harassed to pay exorbitant sums that they had already repaid by the loan app operators. In other cases, people downloaded a loan app, but didn’t take any loan and ended up deleting it from their phone, only to be harassed later to repay a loan they never took. The fault – sharing data!


Loan apps also share your data with several other similar businesses or their own sister companies and lure you to take more loans. People have been trapped into taking more loans and the debt cycle. There have been cases where people ended up repaying Rs 50,000 for a Rs 20,000 loan with the interest rate, processing fees and penalties all adding up.


There are rules on how a debt collector should proceed with the collection. Most loan app debt collectors are violating the norms. So, if you are being harassed by loan app debt collectors, you need to approach the police. Or you can also file a complaint with RBI’s portal Sachet.

The best thing to do would be to avoid borrowing from such apps. But if you have to, then check the apps’ rating and reviews on Google Play Store or App Store; check whether the NBFC (Non-Banking Financial Company) or bank they are linked to is accredited by the RBI.

The RBI recently announced that they found nearly 600 loan apps operating illegally in India, and have blocked 27 such apps. So, don’t end up borrowing from an illegal loan app, maybe ask your parents for that loan with a side scolding. 

Last updated: April 20, 2022 | 16:23
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