Hindi films of yesteryears projected moneylenders as evil characters, whose only purpose in life was to torture the righteous hero who is unable to repay the loan that his father took. A little later, they said bank loans are not available to all, so poor villagers are trapped in the moneylenders’ hands. When I wanted a loan for business, I realised banks only lend against collaterals. I wondered if it was simpler and cheaper to sell the asset and buy it again when you can afford it.
With the liberalisation 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 could easily miss them. Then came the easy loans for the salaried class, which allowed us to buy that dream car, home and gadgets instantly. People assumed a steady growth in salary and kept picking up loans. 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 us.
The latest in this arena are 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 few thousands 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 less than 60 days. It might contain the issue for the time being and regulations would come to plug some gaps, but the problem will keep coming back in new garbs. The RBI’s cautionary notes are rarely accessible to the general public.
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 keep nudging you every time you use your favourite function on the 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 on your life: you cannot get in touch with anyone, no transactions and 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.
There are million advertisements and advertorials on all kinds of media and e-commerce platforms luring me to overspend and buy the luxuries I can probably do without. There is hardly anyone telling me to read the fine print, understand interest calculations and minimise 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.
We cannot do away with loans; they have been around since the earliest days of human civilisation. But we can definitely be far more judicious about them. Taking a loan for education or building an asset like 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 courts. No recovery agents or phone blocking software will ever harass them.
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 for mutual funds and other investments like equities, there are almost none for the loans 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? Can they put an upper limit on annual interest rates that can be charged? Can these apps mandate an awareness test before sanctioning a loan? Can the terms and conditions be mandated in local languages as most documents exist in English as of now?
Most importantly, can schools teach children about the perils of life on perpetual loans? Can parents discourage their kids 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 robbery. Don’t look at the momentary joy that a loan can give you, think of the misery it can bring on for a long term.
The writer is an author and founder of blogging website IndiTales
She can be contacted on Twitter: @anuradhagoyal