While digital lending apps are all the rage, I am a bit paranoid even about downloading and browsing through such apps. I worry about the Machiavellian design of their user interface and that I may be fooled into taking a loan I didn’t want. And while it may sound surprising, this can happen.
Recently, I came across an example on Twitter where a user reported such an instance. He tried just to browse and understand the interest rate on loan. And voila, he ended up taking a loan. A loan of Rs 1.4 lacs that he didn’t want or need. You can read the entire experience here.
Why Is That a Problem?
Firstly, you didn’t need this loan. Thus, you must pay interest on the loan you didn’t need.
Secondly, the rate of interest is usually very high. In this case, the rate of interest is 36% p.a. Rubbing salt on the wound.
Yes, you can close the loan by repaying the entire amount instantly, but the prepayment terms could be harsh. What if there is a prepayment penalty of 5% of the outstanding amount? These are not floating rate loans. Thus, such loans can have prepayment penalty.
What if the prepayment is not permitted in the initial few months? You will have to bear the high interest cost at least for those months.
Besides, there could be upfront charges such as the processing fee that is non-refundable. Even full prepayment won’t get you the refund on this. In this case, he was charged a non-refundable processing fee of Rs 5,600.
Finally, there are multiple parties involved. The fintech player is just a facilitator. The lender will be an NBFC or a bank. And the lender has disbursed a loan. Reversing a transaction in such a tripartite arrangement is difficult.
Fortunately, after his experience went viral on social media, the fintech lender asked him to make full prepayment and refunded the processing fee after full prepayment.
Not every borrower is so lucky. The borrower mentioned that the customer care team was not very cooperative initially. It is possible that the fintech company backed down and agreed to refund the processing fee to avoid reputational damage since the incident had gone viral.
The Caveats and What Should You Do?
I concede this is just a one-sided account of what happened. It is possible that the borrower picked choices while it seemed quite evident that an OK would result in loan disbursal. I have not used the app and thus I cannot comment.
I am also not saying that all such fintech apps are bad. However, there is a lot of competition in this space and the players can cut a few corners to achieve growth. The user interface can be made deliberately misleading.
I will digress here and share an experience, albeit unrelated. I get feedback calls after getting my car serviced at a company authorized service center.
Rate your experience on a scale of 1-10. 10 is very good. 9 is good and 8 is bad.
While I still have an option to specify any number from 1 to 10, when the 8 already indicates dissatisfaction, why go below that? This is cunning and manipulative.
Such manipulative things can happen through app design too. You may get an impression that you are not sharing consent, but you are. How would you answer the following question?
Would you like a loan of Rs 1 lac?
You may answer “Yes” without meaning “please disburse me the loan”. You may believe this is not the final confirmation for disbursal and you can back out later. The app managers may consider this as your final confirmation and disburse the loan. Who would you fault here?
Therefore, take extra caution while browsing through digital lending apps. Don’t share access that those apps shouldn’t need. Access to your emails or photo gallery. Besides, if you don’t need a loan, what is the point of unnecessarily installing and browsing through such apps?