5 critical mistakes to avoid when taking a loan from fintech companies

Fintech firms have in recent years transformed lending in India with fast, convenient, and largely unsecured loans to crores of borrowers. Leading fintech companies such as Paytm, Cred, MoneyTap among others charge different interest rates depending on the profile, credit score, history of repayment etc., of borrowers. 

The below table gives a rough idea of the interest rate charged by some of these firms:

(Interest rates are indicative and may vary based on borrower profile and terms)

Now, such personal loans are easy to plan for the sudden liquidity need, still there are certain traps to be remembered while borrowing a loan from fintech organisations so that one does not get into financial issues. Below are five things not to do while borrowing a loan from fintech organisations:

1. Not reading the fine print

One of the most typical errors of the borrowers is not carefully going through the loan agreement. Fintech loans have astronomically high interest rates, EMIs and concealed fees, which can add a very high value to the loan amount.

Make sure to read all the terms and conditions clearly, including interest rates, processing fees, and late payment fees, before signing the document. It is hence best to read between the lines in order to ensure that you get no surprises in the future.

2. Overlooking credit score consequences

Fintech loans may appeal and assure you that in the long run these loans will not hamper your credit score. Still, do remember that your credit score will be hit if you are unable to repay the amount in time.

Not only this, not paying fintech loans can actually reduce your credit score quite substantially, and future loans can then be beyond you. Ensure that you have some repayment strategy so you are not classified as a bad credit individual due to a poor credit score. Further, also follow all your updates and applications to ensure that you miss no development. 

3. Ignoring repayment terms

Fintech loans generally have limited repayment terms, starting from a few months in some cases. Delayed repayment or delay in repayment incurs a penalty, and also incurs other charges and fees. Choose a loan carefully which has repayment as per your affordability.

4. Not comparing offers

Since most of the fintech players offer loans, you need to compare some of them before selecting one. Select the loans with lesser interest rates, nearly no hidden charges and least possible processing fees. You can compare a number of loan offers on platforms like BankBazaar or Paisabazaar and select the appropriate one.

5. Falling for unsolicited offers

Be cautious of spontaneous loan offers from unknown fintech companies. These can be scams designed to obtain your personal and financial information. Always verify the authenticity of the lender and whether they are registered with the Reserve Bank of India (RBI) before going ahead.

Therefore to conclude, even though fintech loans are capable of offering you instant availability of money, you must ensure that you use them wisely. It will help you in managing your financial health properly. It will also ensure that borrowing money from fintech platforms becomes a pleasant experience on an overall account.

(Note: Raising a loan comes with its own risks. So, due caution is advised)