Tuesday, July 16, 2024

8 Reasons why you should avoid loan apps

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Adetunji Matthew
Adetunji Matthewhttp://www.aidthestudent.com
I’m Adetunji Matthew, an Economist, Social Media Manager, software Developer/Marketer Sales Consultant, and Ecompreneur. I’m popularly known as “Matt” As an artist and designer, I aim to create something brilliant daily. Eager to learn more, I use my free time to get better at w hat interests me, whether it's researching, teaching, or even something entirely new.
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Online lending platforms may have harmed some Nigerians more than they have helped. 

One of the reasons people use these lending platforms to borrow money is to help them out when they need money. However, it has evolved into more of a dead trap, and you could become the next unwitting victim, or perhaps a loved one unless you are aware of the extent to which these non-state actors have caused harm to the average Nigerian.

Like the saying goes thus ” When Satan gives you with one hand, he collects everything with the other hand”.  This has been the plight of numerous Nigerians, for something that started as a means of quick financial relief has metamorphosed into the greatest nightmare in their life. Debts are bad, but it is worse when the threat to life and public defamation of characters is accompanied by them.

Many have been engulfed with these loan sharks, and have caused them untold harassment and disgrace from family and friends.

A loan shark is a one or a business entity that loans money at an extremely high rate of interest and usually uses threats of defecation and violence to collect debts, and that’s just to say the least. 

The information one gets at the right time could be life-saving and that is the reason for this article. You will do well to know and understand the modus of how these loan apps operated and why you should never consider them in the first place. Please read carefully, as this could save you or someone from financial peril in your quest to solve a financial problem.

Also Read: How to sponsor your university education in Nigeria

Reasons you should avoid loan apps (sharks)

1. Divulging  your bank verification number

Although online loan apps usually use the “no collateral” strategy to market their loan which has a short repayment span, they won’t disclose the need for your bank verification number until you begin filling out a form on their app. They claim that the bank verification number is used to assess each user’s ability to get loans before they sign up on their platform.

Even though financial institutions have frequently cautioned that the bank verification number is your financial identity card and can be used to access part of your financial information and records as well as to plan a scam, desperate borrowers might not be concerned about disclosing their bank verification number. Even worse, it can be reported to the credit bureau so that, should you ever default on your payment, your bank verification number would be blacklisted.

The chance of borrowing money from your financial institution or engaging in more significant business transactions shortly will be minimal because of your poor credit rating, even though this might likely not be a big problem to you now.

Also Read: Nigeria student loan scheme: All you need to know

2. Humiliation, public defamation, and intimidation 

Online lending services are growing more well-known for threatening, shaming, and harassing loan defaulters as each day goes by. Online lending platforms have the power to send defamatory texts to everyone in your contacts and brand you a suspected criminal who stole their company’s funds, regardless of whether you have a cogent reason for defaulting or not.

The embarrassment is frequently severe since your contacts on your phone, including those of long-lost acquaintances, family members, bosses, coworkers at work, colleagues at your place of worship, and your immediate family are likely to receive negative and derogatory remarks about you.

In some circumstances, one may receive a personal warning that, if they don’t complete their remittance on time, the credit agency will blacklist them. Then there are the persistent, possibly unwarranted calls that are made to remind those who have defaulted to make payment.

Many borrowers have been driven to the verge of suicide as a result of these practices, which have been known to only cause disgrace and humiliation to some borrowers.

3. Extremely high rates of interest 

The exorbitant interest rates that come with a lender’s loans are what qualifies them as loan sharks. These loan apps offer loans with interest rates that are often between 15% and 30% weekly or monthly, while Nigerian banks’ interest rates are typically between 9% and 11.130% annually.

Despite claims to the contrary, some never offer loans with interest rates as low as 2% to 5%. This implies that a borrower who takes out an N15,000 loan could pay N17,250 to N19,500 every week or month in interest. As a penalty for defaulting, someone who is barely making ends meet is left to pay not only the principal and interest but also additional fees with each passing day.

Also Read: How to get student loan in Nigeria

4. Access to your mobile device

The ramifications of having unrestricted access to your mobile device and its data are rather worrisome. Your data, including your name, address, and social media accounts, are now available to them thanks to this access.  As a last attempt to obtain their money, if you default, they can do this and unleash a barrage of attacks on you using the data in your phone.

It is specified in the permissions section of the software download. If you didn’t feel comfortable with it, you would not have agreed to that requirement. But since you required the cash, you agreed. They can manipulate the data inside and use it to recover their losses because the device was used to start the loan request, serving as collateral.

5. Relying on fast cash may lead to a debt cycle

The bulk of loan applications in Nigeria have a two-week repayment deadline, but surveys show that most borrowers carry their debt for much longer. Due to the high fees and interest rates, it’s easy to get caught in a cycle where you either extend the loan for an extra two weeks or get a new loan from a different loan app to pay off the prior debt.

Exorbitant fees and interest rates that come with instant money are a cost. If you have a history of only using payday loans to fund your living expenses, this method of borrowing money could be expensive.

Loan apps may ease you out of a tight spot financially, but they are merely a band-aid for a deeper, more serious issue.

6. Legitimate and unfettered Access to  your bank account

The majority of people are quite outraged when automatic withdrawals from their bank accounts are made by online lending platforms without their permission, even though they have agreed to the conditions of use of the site when they were forced to use it.

A loan App can legitimately withdraw money from your account without having to send a cheque to your bank when a lien is placed on it. Your accounts become subject to a lien when you enter your debit card details on the lending platform’s site or mobile app to apply for loans.

While they may lure borrowers to enter their debit card to get paid or as a final check, doing so involves granting them access to every part of your debit card, from which they will have unlimited access to your account to steal not just the principal but the interest you have accumulated over time.

Also Read: Loan sharks in Nigeria: How to identify and avoid

7. Reduced saving culture

People who utilize online loan platforms to obtain loans have a recurring, obvious pattern: they are unable to save since they are frequently repaying high-interest debts obtained from these sharks.

Their inability to save is a result of the interest they must pay on their debts, which frequently leaves them with little to nothing at the end and drives them to take out further loans to make ends meet. Some people get involved in a web of debt as a result of borrowing money from one loan shark to pay another.

Those who desire to stop the cycle may find it exceedingly challenging to do so since they have so many excessive interest obligations to pay off. They are so forced to remain dependent on these loan sharks who exploit them and leave them in more financial peril than when they started.

8. The possibility of becoming addicted

Continuously using fintech lending applications to obtain loans might become addicting because the idea initially feels like “free money” until one runs into payment difficulties. One might occasionally need to rely on many online lending platforms because loan apps in particular can develop a strong addiction over time.

It could be necessary to wait until the end of the month to pay off debts before taking out new loans. When utilized in a “rob Peter to pay Paul” fashion, loan apps can have a terrible effect on a person’s money, financial development, and personal life.

Also Read: Top 8 Online Platforms to Get Quick Loans in Nigeria (Without Collateral)

Conclusion 

Even though your motivations for needing a loan may be cogent, we suggest you first ask your relation, or coworkers if they can help you out. If you want to be at peace, and not have any sort of mental stress, then it is not at all wise to give over sensitive information in exchange for borrowing money and paying a higher rate of interest on it, and not to talk of the fury of defamation and threat that may follow if you eventually default. If at all possible, look for other options, especially opting for friends, relatives, or coworkers to lend you some money temporarily. Loan apps should be avoided if you have a job that pays a living wage.

Develop the discipline of saving instead of spending every money that you earn. This way, you can have some emergency backup to fall back on in case of any eventuality instead of resorting to loan apps. This will save you the pains that come with defaulting on the loan when due.

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