Yesteryears Hindi films projected the moneylenders as evil characters, whose only purpose in life was to torture the righteous hero who is unable to repay the loan his father took. A little later they said bank loans are not available to all, so poor villagers are trapped in the moneylender’s hands. When I wanted a loan for business, I realized banks only lend against collateral. I wondered if it was simpler and cheaper to sell the asset and buy it again when you can afford it.
With the liberalization of the economy in the 1990s came, the credit card culture that taught us to spend now and pay later. Interest rates were mentioned in fine print so that you can easily miss them. Then came the easy loans for the salaried class, which allowed us to buy that dream car, home, gadgets instantly. People assumed a steady growth in salary and kept picking up loans. The recession was rarely budgeted for. Slowly the unpleasant stories of harassment by loan recovery agents started reaching our ears. We ignored them thinking, this would not happen to me.
Instant Loan Apps, Path to a Debt Trap
The latest in this arena is Instant Loan Apps. They offer unsecured loans for short durations at exceptionally high rates, access your private data on phone before aggressive and sometimes abusive follow-ups. Along with processing and subscription fees, the landed interest rate can be upwards of 80% per annum. There are stories of a loan of a few thousand turning into a liability of lakhs. Obviously beyond the reach of anyone who borrows small amounts. Driving some even to suicide. Recently Google Play Store removed a number of such apps that offer loans with repayment of fewer than sixty days. It might contain the problem for the time being. Regulations would come to plug some gaps. But the problem will keep coming back in new garbs. RBIs cautionary notes are rarely accessible to the general public.
Mobile Phone Blockage to Intrusive and Abusive
Loan recovery mechanisms are also evolving with technology. The e-commerce platforms titillate you to buy that smartphone that is definitely out of your reach, on easy EMIs. You buy and the reminders to pay to keep nudging you every time you use your favorite function on your phone. If you are unable to pay on time, your phone can be totally blocked. The worst is when you end up buying a second-hand phone that was bought on EMI by the seller and end up paying the remaining EMIs. This is like a digital block in your life. You cannot get in touch with anyone, no transactions. No one is able to reach you. There are cases where the threat is to embarrass you by informing all your contacts about your pending loan.
Luring to overspend
There are millions of advertisements and advertorials on all kinds of media and e-commerce platforms luring me to overspend. Buy the luxuries I can probably do without. There is hardly anyone telling me to read the fine print, understand interest calculations and minimize risk. No regulatory body tells the lenders to specify the net landed price in bold that one will end up paying. Are loan recovery agents and digital threat tactics legal? We do not know. No one teaches us to calculate the cost of taking a loan. Which besides the interest amount also includes our peace of mind, respect, and dignity. Popular media stories tilt towards lenders vis-à-vis a common consumer.
We cannot do away with loans. They have been around since the earliest days of human civilization. We can definitely be far more judicious about taking loans. Taking a loan for education or building an asset like a home or for emergencies is understandable. But loans for luxuries help the lender more than the borrower. The real loser is the person at the bottom of the pyramid. The biggest defaulters continue to lead their luxurious lives outside the country as their lawyers engage with the law. No recovery agents or phone blocking software will ever harass them.
Don’t build a life on loans
No NGO, to the best of my knowledge, is working on educating us to avoid building a life on loans. While there are mandatory declarations on mutual funds and other investments like equities, there are almost none for the loan ecosystem. Can the Government make it mandatory to mention the total amount to be paid in lieu of loan in one figure in bold signed by both parties? Is it not possible to enforce that they put an upper limit for annual interest rates that can be charged? Can loan apps mandate a loan awareness test before sanctioning a loan? Can the terms and conditions be mandated in local languages?; most documents exist in English as of now.
Most importantly, can the schools teach children about the perils of life on perpetual loans? Can parents discourage their kids from stepping into professional lives from taking too many loans too soon?
As my grandmother used to say – Don’t look at the thief when he is stealing, look at him when he is being beaten for stealing. Don’t look at the momentary joy that a loan can give, think of the misery it can bring on for a long term.
Edited for this online publication.