Nithin Kamath shares plight of loan shark victim, cautions against illegal finance apps. What are they?

Zerodha founder Nithin Kamath recently shared some red flags to identify fake and shady loan applications that trap people with lucrative schemes and offers and then threaten them for repayment of loans on higher interest.

In his social media post, Kamath warned his followers to be aware and alert of “shady, illegal” digital lending applications. He also mentioned some ways to identify such fraud applications. In his next post, he shared screenshots of his conversation with a victim of such a fraud loan application, who ended up paying nearly 50% extra amount of his debt to the loan application.

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In his post, the bootstrapped entrepreneur shared the threats of easily trusting any random loan application without even verifying it. He also warned people not to give access to such applications to contacts, messages, photos, etc, on personal devices. 

Mentioning the exorbitant interest rates charged by such loan applications, Nithin Kamath wrote, “What makes these apps disgusting is the fact that many of them deduct as much as 10% upfront. Then there's the fact that interest rates range from 50% to 100%, or even 200%+. It's impossible for people who borrow on these apps to repay with such usurious terms. But considering people who borrow on these apps are desperate, they don't notice the fine print.”

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Red flags of a loan app

There has been a significant increase in the number of police complaints against fraud loan cases in India over the past three years, according to the video shared by Kamath in his post. Here are a few red flags mentioned in the video shared by Kamath.

- Carelessly granting all the permissions asked by the loan application on mobile phone (like contacts, media, images, mic, locations, etc). Many times people don't even check if permission is needed or not.

-Not reading the Terms and Conditions policy of the loan application. 

The first red flag is if you are not able to find background information about the loan application on the internet.

-Absence of loan agreements and the procedure of Know Your Customer (KYC).

-Immediate money transfer to a bank account without any paperwork or documentation.

-Extremely high-interest rates and hidden charges.