7 Vital Red Flags Indian Borrowers Need to Look Out for — and How to Avoid Loan Frauds

Loan scams in India aren’t just bad luck — they’re deliberately engineered. Scammers exploit urgency, gaps in regulation, unfamiliar digital platforms, and human psychology. Over the last few years, regulators and police have repeatedly warned about illegal “loan apps,” fake agents, impersonation scams, and high-pressure recovery tactics that have drained crores from unsuspecting borrowers. The good news: almost all these scams show telltale warning signs. Spot them early, and you’ll stay safe.

 

Why This Is Important to Indian Borrowers

India’s online lending boom provided much good — quicker access, less paperwork, disbursals at the doorstep — but also a cottage industry of unscrupulous apps and scammers. Regulators and banks sound warning signals at regular intervals, and the government operates a national cybercrime reporting system with a 1930 helpline for victims. Half the battle is knowing where scams typically begin and where to report them officially.

 

The Seven Red Flags (With Examples, Tactics, and What to Do)

“Instant loan” offers with zero documentation or upfront transfers

What it looks like: An app, WhatsApp message, or call offers an instant personal loan—no salary slips, no PAN/Aadhaar checks—sometimes with immediate disbursal of a small “demo” amount. Then the lender demands that you pay a “processing fee,” “verification charge,” or   “KYC fee” before disbursing the whole amount.

Why it’s a warning: Genuine regulated lenders in India do KYC, income verification, and underwriting. They hardly request cash transfers upfront for disbursal. Frauds use low disbursals to establish trust, subsequently asking for additional amounts or harassing you. 

Tactics often employed:

• Disbursing ₹100–₹500 so your bank reflects the transaction and you believe it’s genuine.
• Requesting you to remit a “compulsory GST/insurance/processing” amount through UPI or IMPS.
• Asking for a higher amount of money or threatening to withdraw the loan if you don’t oblige.

What to do immediately if you notice this:

• Never send money to a person or app prior to a signed loan agreement with a regulated lender.
• Request the lender’s registration information (NBFC/Bank license), office address, and a physical agreement. 
• If you have already paid, contact your bank or UPI app immediately to block further payments and raise a dispute.

Pressure, urgency, and fear tactics (including “digital arrest”)

What it looks like: Phone calls or video calls stating that you will be arrested, your Aadhaar is under a crime linkage, or an immediate “freeze on account” if you do not comply. Scammers usually pose as the police, court staff, or bank officials and present forged papers to threaten you.

Why it’s a warning: The government doesn’t call citizens asking for immediate payments, nor do they request OTPs or bank transfers by phone. A thief makes up fake urgency so you don’t verify the facts.

Some common tactics employed:

• Impersonation of CBI/police/ED using forged documents.
• False video hearings or screen-shared “court orders.”
• Repeated calls and threats; orders not to speak to family.

Safe response:

• Hang up and dial the local police station or the bank’s official number independently to confirm.
• Never disclose OTPs, netbanking passwords, or account credentials over the phone.
• Report the call on the National Cyber Crime Portal and on the 1930 helpline.

Insistent collection behaviour and privacy violation upon disbursal

What it does: Once you’ve taken a loan (or sometimes even before), you begin getting harassing calls, threats, or messages to your contacts. Scammers threaten to release screenshots, videos, or your personal photos.

Why it’s a warning: Unlawful lenders or debt recovery agents circumvent regulated debt recovery practices. They abuse information gathered with app permissions to bully and shame borrowers to make them pay.

Tactics commonly employed:

• Requesting broad phone permissions (storage, camera, contacts) on app install.
• Shaming publicly through WhatsApp groups or social media.
• Endless harassment — odd hour calls, multiple numbers.

Tips to guard your privacy:

• On Android/iOS, provide only required permissions. Withdraw excessive permissions promptly.
• Update passwords for email, banking, and social media if you think there’s a breach.
• Record abusive calls/messages and report a cybercrime.

Asking for OTPs, netbanking information, or “remote access” to your phone

What it looks like: Lenders, collection agents, or “verification officers” request you to provide OTPs on your phone, or to download remote-access software like AnyDesk or TeamViewer in order to “assist in verification.”

Why it’s a warning: OTPs and netbanking passwords are the doorways to your money. No regulated lender or official will ever request them.

Tactics used: 

• Requesting OTPs to “verify the loan” or “reverse a charge.”
• Requesting you to download remote-access software to “finalise KYC.”
• Employing social engineering to make you divulge biometric or sensitive information.

What not to do:

• Never divulge OTPs or bank passwords.
• Deny remote access requests; confirm lender identity via official avenues.
• In case you have divulged something, immediately contact your bank to lock the account and report a cybercrime.

No verifiable registration lenders, imitation websites, or dodgy app listings

What it resembles: The lender’s website is badly designed, does not have a physical address, or displays forged logos. App listings can feature duplicated five-star ratings or very little information.

Why it’s a caution: GENUINE banks and NBFCs are registered. Frauds develop duplicate websites and copied apps to make them look authentic.

Tactics typically employed:

• Employment of government logos (such as RBI or PMMY) without evidence.
• Displaying forged registration numbers.
• Forcing customers to use WhatsApp chats rather than proper customer care.

How to verify legitimacy in a hurry:

Look up the lender’s name or registration number on the RBI website.

Ensure independent reviews and proper media reports.

If the app is the sole channel and does not have an office address or grievance contact, consider it high-risk.

Asking for someone else’s bank account or suspicious documents

What it looks like: Lender requests that you utilise another individual’s bank account for repayment or disbursal, instructs you to “temporarily” associate a different phone number, or asks for unrelated documents such as family photographs.

Why it’s a warning: Scammers frequently use mules to transfer funds to launder money. The request for unrelated documents indicates risk of misuse.

Tactics commonly employed:

• “We don’t have a banking tie-up in your city — give a friend’s bank details.”
• Demanding selfies with sensitive papers.
• Asking for repayment through unidentified wallets or crypto wallets.

Safe options & reaction:

• Demand disbursal and repayment only through your personal bank account.
• Never give blank cheques, sensitive photographs, or irrelevant documents.
• Walk away and report the site if cornered.

Impossibly good credit repair or “guaranteed” approvals

What it does: Promises hope of guaranteed CIBIL improvement for money, or lenders offering guaranteed approval regardless of bad credit, typically for payments upfront.

Why it’s a warning: Credit scores do not get fixed overnight for money. Guaranteed approvals are a bait-and-switch trick to get money up front and then vanish.

Tactics commonly employed: 

• Charging upfront for “credit repair.”
• Providing assured loans at low interest if you pay a non-refundable admin fee. 
• Requesting transfer to untraceable payment channels. 

What to do instead:

• Utilise legitimate credit counselling facilities.
• Verify credit report directly from CIBIL or other bureaus.
• Avoid paying for “magic” solutions — they’re almost always scams.

 

Practical Prevention Guide (Bite-Sized Actions)

Before applying for any loan (do this)

• Confirm lender registration with RBI.
• Carefully read the loan agreement.
• Verify app store reviews for harassment patterns.
• Use official contact numbers, not WhatsApp or ads.
• Restrict app permissions.

If an offer appears suspicious (script)

• Caller: “You qualify for a loan — pay ₹2,000 processing fee.”
• You: “Please send an email with a signed loan agreement, invoice, and your NBFC/Bank registration number. I’ll check and call you back.”

After a suspicious action

• Freeze bank/UPI transactions.
• Change passwords and activate two-factor authentication.
• Preserve all messages, screenshots, and call logs.
• Register a complaint on the National Cyber Crime Reporting Portal or contact 1930.
• Register an FIR at the nearest police station.

 

How to Check a Digital Lending App

1. Check the RBI registers for the lender’s name.
2. Verify physical presence — office address and grievance officer.
3. Check the fine print in the loan agreement.
4. Verify developer details on app stores.
5. Search the internet using the lender’s name. 

 

If You Were Defrauded — Recovery Plan

1. Contact your bank or UPI provider immediately.
2. File a cyber complaint on cybercrime.gov.in and call 1930.
3. File an FIR at the local police station.
4. Preserve evidence: screenshots, numbers, transaction IDs.
5. Approach the lender’s grievance officer or RBI Ombudsman if the lender is regulated.

 

Six Practical Tips to Avoid Becoming a Victim

1. Treat OTPs like your ATM PIN.
2. Limit app permissions.
3. Use only verified lenders.
4. Don’t be rushed — take at least 24 hours to verify.
5. Document harassment and preserve all documents.
6. Inform relatives, particularly senior citizens and youth.

 

Brief FAQ

Q: May actual lenders charge a processing fee?

Yes, but it should be reflected in the loan contract and presented on formal bills.

Q: I previously paid a “verification fee” — can I reclaim it?

Act quickly: phone your bank, lodge a cyber complaint, and raise a police report.

Q: What if a caller claims to be from RBI or CBI?

Hang up. No genuine authority will demand money or OTPs over the phone.

 

A Borrower’s Safety Checklist (Printable)

• Checked RBI/official registration for the lender.
• Read and saved the loan agreement.
• Did not share OTPs or bank credentials.
• Did not install remote-access software.
• Limited app permissions.
• Saved all messages and communications.
• Know where to report (cybercrime.gov.in/1930 / 1930).

 

Final Thoughts

Digital credit is empowering crores of Indians, but fraud flourishes in the same arena. Guard yourself by checking for registration, carefully reading agreements, safeguarding your credentials, and viewing pressure as a red flag. If something doesn’t feel right, back away, check independently, and where uncertain — report.