{"id":1104,"date":"2022-04-21T04:51:51","date_gmt":"2022-04-21T04:51:51","guid":{"rendered":"https:\/\/shanthalachits.com\/investopedia\/?p=1104"},"modified":"2022-04-21T04:56:27","modified_gmt":"2022-04-21T04:56:27","slug":"how-to-check-if-a-lender-is-a-fraud-5-easy-steps","status":"publish","type":"post","link":"https:\/\/shanthalachits.com\/investopedia\/how-to-check-if-a-lender-is-a-fraud-5-easy-steps\/","title":{"rendered":"How to check if a lender is a fraud \u2013 5 easy steps"},"content":{"rendered":"\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"700\" height=\"400\" src=\"https:\/\/shanthalachits.com\/investopedia\/wp-content\/uploads\/2022\/04\/blog-700x400-1.png\" alt=\"\" class=\"wp-image-1105\" srcset=\"https:\/\/shanthalachits.com\/investopedia\/wp-content\/uploads\/2022\/04\/blog-700x400-1.png 700w, https:\/\/shanthalachits.com\/investopedia\/wp-content\/uploads\/2022\/04\/blog-700x400-1-300x171.png 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/figure>\n\n\n\n<p>The business of lending and borrowing is one of the most critical financial transactions in any economy. But at the same time, it is highly prone to financial fraud. Whether it is individual borrowing, institutional or government borrowing, both the lender and the borrower need to take some cautious steps to verify each other\u2019s credentials before entering into an agreement.<\/p>\n\n\n\n<p>We at Shanthala Chits have covered the various scenarios and pitfalls of insecure financial credit in different blogs over the years. Today we are delving deeper into the serious malaise of fraudulent lenders. There are many unscrupulous financial institutions that operate with the sole intention of tricking the gullible borrower.<\/p>\n\n\n\n<p>The problem of fraudulent lending companies comes in various avatars:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>NBFCs offering cheap loans way below the market interest rates<\/li><li>Ponzi schemes offering exorbitant returns<\/li><li>Fin tech apps offering instant credit<\/li><\/ul>\n\n\n\n<p>A disastrous scam that caused a major scandal in Bangalore a few years back is a case in point. The news may fade from media glare in a few weeks but the affected families will carry the scars from the incident throughout their lives. The trauma faced by lakhs of investors who fall for such dubious fund schemes is impossible to erase. While some senior citizens have put in their life savings, some women have invested for their daughter\u2019s wedding expenses. Now they face years of dealing with police cases, mental trauma and massive financial loss.<\/p>\n\n\n\n<p>Governments can make legal safeguards against such financial instruments. Police can take corrective action for recovering lost money. Media can educate the masses on such frauds. But only when the investor himself exercises caution and stays away from these schemes can the problem be eradicated. As long as investors get tempted by fraudulent claims of abnormally high returns, such fraudsters will keep emerging in different parts of the country.<\/p>\n\n\n\n<p>You might ask &#8216;What are the ways to detect if a lending institution or scheme is dubious or risky?&#8217; Try out these simple tests and you will be able to make the decision yourself.<\/p>\n\n\n\n<p><strong>1) The website:<\/strong> There are several clues that you can get by carefully browsing the company\u2019s website. In today\u2019s times, if a lender doesn\u2019t have a website, that in itself is a point of caution. If they have a website, you can check the following aspects:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Is the website URL properly reflecting the registered company name and registered office address.<\/li><li>Does the URL have a &#8220;https:\/\/&#8221; prefix representing a secure website.<\/li><li>The board of directors, annual financial statements of the company are all present in the website<\/li><li>Interest rates and other repayment terms are clearly defined on the website<\/li><\/ul>\n\n\n\n<p><strong>2)<\/strong> <strong>Company registration with Government:<\/strong> The lending company must be registered with an appropriate Government body. Unless there is an appropriate Government recognition, never trust such an unverified lender.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Chit fund companies must be registered with the respective state governments under the Chit Fund Act of 1982.<\/li><li>Small finance banks must have a proper RBI banking license.<\/li><li>NBFCs must be registered with RBI<\/li><li>Equity market related Fin tech apps to be registered with SEBI.<\/li><\/ul>\n\n\n\n<p><strong>3) Interest Rates \u2013 <\/strong>When the lending rates offered are too good to be true and way below the prevailing market rates, alarm bells must start ringing in our minds. It is impossible for a lending company to offer unnaturally low rates unless there are some malpractices involved.<\/p>\n\n\n\n<p><strong>4) Credit worthiness \u2013 <\/strong>When a lender doesn\u2019t bother much about a borrower\u2019s ability to repay the money, then something is wrong somewhere. Why would a financially responsible company lend money to a high risk customer without verifying their repayment capacity or personal credentials? So if the lending company doesn\u2019t ask for your income proof, IT returns or credit scores but is eager to still lend you money, then stay away. It might sound like a very attractive and easy way to get a loan from such a company, but the troubles start to mount immediately after you sign up.<\/p>\n\n\n\n<p><strong>5) Repayment Terms \u2013<\/strong> The devil is in the detail. This statement is especially true with the terms and conditions that borrowers agree to, without giving much thought to their repercussions. Never trust a company that hurries you up to sign agreement forms without clear repayment terms and penalties. Never surrender your KYC documents as collateral. There are so many instances of loan collectors harassing their customers as soon as a payment is delayed, exorbitant late payment charges being levied, public naming and shaming of borrowers, relatives getting threatening calls from the companies. So beware, don\u2019t fall into this trap.<\/p>\n\n\n\n<p>With these precautions in place, you can rest assured that you are in safe hands and your lender is trustworthy. Chit funds as an investment instrument are an attractive option for investors, if only they take the right safeguards before investing.<\/p>\n\n\n\n<p>We at Shanthala Chits are committed to ensure that every investor is educated about all the scheme details. Our successful track record of 25 years with thousands of satisfied customers speaks of our integrity and commitment. Shanthala Chits is registered under the Chit Fund Act of 1982, Government of Karnataka.<\/p>\n\n\n\n<p>You can visit our registered office in Bangalore any time to meet our office bearers and get any information you may need. We believe in transparent communication with our customers. Our scheme details are also clearly displayed on our website. Your money is safe with us. Get in touch to know more\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The business of lending and borrowing is one of the most critical financial transactions in any economy. But at the same time, it is highly prone to financial fraud. Whether it is individual borrowing, institutional or government borrowing, both the lender and the borrower need to take some cautious steps to verify each other\u2019s credentials [&hellip;]<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[],"class_list":["post-1104","post","type-post","status-publish","format-standard","hentry","category-personal-finance"],"_links":{"self":[{"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/posts\/1104","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/comments?post=1104"}],"version-history":[{"count":4,"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/posts\/1104\/revisions"}],"predecessor-version":[{"id":1109,"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/posts\/1104\/revisions\/1109"}],"wp:attachment":[{"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/media?parent=1104"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/categories?post=1104"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/shanthalachits.com\/investopedia\/wp-json\/wp\/v2\/tags?post=1104"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}