The Hindi films of yesteryear portrayed the pawn shops as evil characters, whose sole purpose in life was to torture the righteous hero who is unable to repay the loan his father took. A little later, they declared that bank loans are not available to everyone, so poor villagers are trapped in the hands of pawn shops. When I wanted a business loan, I realized that banks only lend against collateral. I was wondering if it was easier and cheaper to sell the asset and buy it back when you can afford it.
With the liberalization of the economy in the 1990s, the credit card culture taught us to spend now and pay later. Interest rates were mentioned in fine print so you could easily miss them. Then came the Easy Wage Class Loans, which allowed us to instantly buy the car, house, and gadgets of our dreams. People assumed steady growth in wages and continued to take out loans. The recession was rarely budgeted for. Slowly the nasty stories of harassment by loan collectors began to reach us. We ignored them thinking it wouldn’t happen to us.
The latest developments in this area are instant loan applications. They offer unsecured short-term loans at exceptionally high rates, access your private data over the phone before aggressive and sometimes abusive follow-ups. Besides the processing and subscription fees, the actual interest rate can reach up to 80% per year. There are stories of a loan of a few thousand turning into a liability of lakhs, obviously beyond the reach of anyone borrowing small amounts, even leading some to suicide. Recently, Google Play Store removed a number of these apps that offer loans with less than 60 days repayment. It could contain the problem for now and the regulations would fill in some loopholes, but the problem will come back again and again in new forms. RBI warnings are rarely accessible to the general public.
Mechanisms for loan collection are also evolving with technology. Ecommerce platforms titillate you to buy this smartphone which is definitely out of your reach, on easy NDEs. You buy and payment reminders keep pushing you every time you use your favorite feature on the phone. If you fail to pay on time, your phone may be totally blocked. The worst part is when you end up buying a used phone that was bought on EMI by the seller and end up paying for the remaining EMI. It’s like a digital block on your life: you can’t 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 letting all your contacts know about your pending loan.
There are millions of ads and infomercials across all kinds of media and ecommerce platforms that make me overspend and buy the luxuries that I can probably live without. Almost no one tells me to read the fine print, understand interest calculations, and minimize risk. No regulator is telling lenders to specify the net landed price in bold that one will end up paying. Are loan collectors and digital threat tactics legal? We do not know. No one teaches us how to calculate the cost of a loan, which, besides the amount of interest, also includes our peace of mind, respect and dignity.
We cannot cut the loans; they have been around since the earliest days of human civilization. But we can certainly be much more judicious about them. Taking a loan for education or building an asset like a house or for emergencies is understandable, but luxury loans 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 courts. No recovery agent or phone blocker software will ever harass them.
No NGO, to my knowledge, works to educate us to avoid building a life on loans. While there are mandatory declarations for mutual funds and other investments like stocks, there are hardly any for the lending ecosystem. Can the government make it compulsory to indicate the total amount to be paid in lieu of the loan in a bold number signed by both parties? Can they cap the annual interest rates that can be charged? Can these applications impose an awareness test before sanctioning a loan? Can the terms and conditions be mandatory in local languages, as most documents currently exist in English?
More importantly, can schools teach children about the dangers of life with perpetual loans? Can parents discourage their new-to-work children from taking out too many loans too early?
As my grandmother used to say, don’t look at the thief when he steals, watch him when he is beaten for theft. Don’t look at the momentary joy a loan can bring you, think of the misery it can bring in the long run.
The writer is an author and founder of a blogging site IndiTales
She can be contacted on Twitter: @anuradhagoyal