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How to Avoid Personal Loan Frauds in India

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Created on
January 24, 2023


What’s Inside

The thing about a growing economy is that there’s a rising demand for capital. This means loans, and this, in turn in, means fraudulent or unauthorised lenders. In fact, a majority of the illegal lending apps on Google’s Play Store are Chinese lenders that operate under the RBI’s radar and prey on the truly desperate, lending them large amounts of money with no collateral but at exorbitant interest rates. 

Even the Finance Ministry and the RBI have taken cognisance of this situation and decided to create a ‘whitelist’ of lending apps that are sanctioned and authorised to offer loans, as an individual you need to do your best to avoid getting trapped by a personal loan scam. This handy guide can serve as your checklist for dodging such scenarios.

Also read: What are the Different Types of Personal Loans? | Fi.Money

How do personal loan scamsters operate?

Most of these scamsters impersonate one of reputed financial institutions. Next, they offer you instant loan amounts with ‘minimal’ paperwork. Many of the fake lenders send a web link asking you to provide basic information to receive a ‘hassle-free’ loan with no verification on credit checks. After that, they just create a sense of urgency, asking you to hurry up or the offer will be revoked.

If it is too good to be true, it probably isn't.

Suppose you do end up taking a loan from one of these unauthorised lenders; the consequences could be many. Here are some things they all do:

  • Ask for unreasonable repayments citing the fine print, which wasn’t there to begin with.
  • Harass and intimidate you or your family with threats of physical harm for the recovery of the money.
  • Force you to provide ownership of your vehicle or property as forced collateral.
  • Threaten you with defamation on social media or at your place of work. 

How can you avoid personal loan scams in India?

Financial literacy is the key to observing some of the telling signs of personal loan scams in India. Here are a few examples:

Guaranteed loans

This is a myth. No reputed lender will risk their money by offering loans without checking your credit score and your ability to repay. There is a thorough verification that is conducted before a loan is sanctioned.

Misspelt links 

Poor language in written communication – Banks and other financial institutions are reputed for their attention to detail in all communication with existing or prospective clients. 

Act now!

Such messaging is intended to create haste in your mind, reducing your ability to carefully examine the offer and terms. Later on, this can be used against you with dire consequences.

Upfront fee

If a lender asks for an upfront fee in the form of processing charges or other administrative work, this is a red flag. Act with caution.

Best practices and checks before borrowing money

Take a minute to read this article on how personal loans in India work. This should give you an overview.

Check the lender’s credentials 

All authorised lenders have a registration number and a licence obtained from the RBI. This should be verified before proceeding with your application.

Read the fine print

The RBI mandates that all loan terms and conditions should be transparently shared with the customer. All reputed lenders do so. Fake lenders leave it ambiguous on purpose so that they can extort higher amounts later on.

Never pay any money upfront

Genuine lenders will never ask for money before processing your loan application. Then, too, most of the charges are adjusted in the loan amount.

Verify company details

Reputed companies have a proper website, a physical address, and a customer care centre. Fake lenders don’t. If you receive a telephonic loan offer, reach out to the company’s support team to verify its authenticity.

Secured website

All financial companies in India have a secure website, the address of which starts with ‘HTTPS’ and has a lock symbol on the address bar. This is the norm to ensure the security of personal data being provided on the site. If the lock sign or the ‘s’ in HTTP are missing, this tells you that this is likely a fake link.

In Conclusion

Buyer beware is an old adage, but quite relevant even today. While the Government has initiated stern action against personal loan scammers, they’re a hard problem to solve. The onus also lies on you to be financially responsible, check for the warning signals, and follow the tricks provided here to prevent getting defrauded by these scammers. On Fi Money, personal loans are disbursed by our RBI licensed bank Federal Bank. The process is paperless and takes minutes.

There are many legitimate lenders out there too. Check this Guide to Applying Online for personal loans.

Frequently Asked Questions

1. What are personal loan frauds or loan scams in India?

Many unregulated lending apps and firms in India offer instant loans without paperwork or background checks. People in need of cash often accept these offers without verifying the lender's credentials. However, these fraudulent lenders can cause mental and physical harassment, misuse personal and financial information, and cheat people of their savings.

2. What happens if a personal loan is not paid in India?

Borrowing money is a serious obligation that requires repayment with interest. If you don't pay on time, the lender will send alerts and reminders by email, mail, or phone. If you still don't respond, the lender can issue a formal loan default notice. You can discuss why you can't repay, and the lender may accept a settlement or insist on full repayment. If that doesn't work, the lender can take legal action and sell any collateral. However, the lender can't coerce or harass you for repayment. Watch out for fake lenders and loan fraudsters who aren't regulated by the authorities.

3. What are some examples of personal loan frauds in India?

Common personal loan frauds in India include upfront fees, "guaranteed" loans without credit checks, and requests for personal or financial information without clear explanations. Always research lenders and carefully review loan terms before agreeing to anything.

4. How to become aware of personal loan scams in India?

To become aware of personal loan frauds in India, research lenders and carefully review loan terms before agreeing to anything. Common personal loan frauds in India include upfront fees, "guaranteed" loans without credit checks, and requests for personal or financial information without clear explanations.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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