Reflections on the increasing use of loan apps
People take loans for various reasons: to meet an urgent and unplanned need, to pay for something they want but may not be able to afford at the time or to tide them through a rough patch. There is nothing wrong, bad, or unusual about taking loans. When one considers how tough things have become in recent times in this part of the world, it only makes sense that one should access a loan if it is needed and available.
Some people swear they could never take loans because of their perceptions about debt, but I often wonder if they realise that many of the big projects people do are often done with debt. People like this tend to keep saving till they have all the funds they need, by which time the time value of money may have counted against the savings. For those who also idolise Western countries, it is important to note that many of these countries are credit-driven and their citizens can go through life accessing credit.
Luckily or unluckily, depending on which side of the table one sits on, our society is not fully credit driven but this comes at some cost. Usually, when one has an urgent financial need, the natural order is to turn to a spouse/ partner, family member, or close friend for a quick fix. These types of informal loans would most likely come at zero interest, after all, na we-we (we know ourselves). But what happens when these close sources are unable to assist?
Considering the state of things nowadays, many people have their issues to deal with and may not always be in a position to help. Then some have frustrated such relationships by defaulting without a thought about repaying their loans, and then they have no one else to turn to. If familial sources cannot help then one would most likely go to a bank or other similar financial institution, and these often come with stringent conditions that many are unable to meet.
If one cannot seek support from a trusted source for whatever reason and one cannot meet the bank’s requirements, where else does one turn? Enter the online lending/ digital loan companies which have become quite ubiquitous in recent times. The main aim of these loan apps is to help people meet unexpected expenses or urgent needs, with many of them providing short-term loans to people and businesses, without collateral. These companies provide their services through apps downloadable through online stores, promising quick loans in minutes. One can loan as low as N20,000 to as much as N500,000 depending on the lender category one fits.
As magnanimous as many of these companies appear to be when people take out loans, their true colour is often revealed when the debtor defaults. If you live in Nigeria, you may have either come across a message like this from a loan app about one of your contacts, or maybe even been the subject of one:
“FINAL WARNING!!! Good day, be informed Mr Omo with phone number 0801xxxxxxx is a defaulter who took LOAN and has vehemently refused to pay. Hence his actions have proven to be SUSPICIOUS. Kindly reach him and compel him to pay up his loan as the company is taking unfriendly & drastic measures including reporting his debt to CREDIT BUREAU as this is an ALLEGEDLY FRAUDULENT ACT. NOTE: You are getting this message because he gave us your number as EMERGENCY CONTACT.”
Many of these new loan apps use similar messages to threaten the contacts of their debtors with the hopes that they can get them to pay up their debts. Name and shame appear to be the game as the belief is that no one wants to be shamed so defaulters would be forced to go and look for the money to pay up rather than be embarrassed.
I have not patronised any of these loan apps nor have I ever received this message on behalf of anyone that I know, so the first time I saw a message like this, I was sure it was a joke! Was the loan company expecting the contact to become their recovery agent? Demand that the debtor pays up immediately? How was it even the contact’s business seeing as many people were not even aware they had been listed as emergency contacts?
I had never realised how harmful these loans could be until I read an expose about some people’s experiences. Many who had ended up defaulting had been embarrassed to the point of getting depressed, others had even attempted suicide while some others had been successful in taking their own lives. All for unpaid loans that under normal circumstances could have most likely been restructured.
I had also never realised how rampant it was until I joined discussions in several WhatsApp groups. There were tales of people who had borrowed money from multiple apps, and those whose friends and family members had bailed out of debt with them returning swiftly to incurring more debts. In many of these cases, the debtors had nothing to show for their huge debt: no tangible assets or investments, just expenses on lifestyle and livelihood.
Many of the people who patronise loan apps are either unemployed (not so surprising when you consider that one can loan small amounts of money without a credit check), employed but underpaid with expenses far beyond their earning power, or just plain greedy, seeing these loans as free funds and having no intention to repay.
Never has it been so easy to access quick loans through formal means as it is nowadays through these apps. The interest rates are often calculated monthly which greatly increases the repayment amount, irrespective many people still swoop in, alas at a steep cost. When one desperately wants to borrow money, the reality of the interest rate may not sink into one’s mind. I also believe that a lack of financial savviness ensures that many people are ignorant of the potential results of defaulting on the loan, both in terms of how their loan is computed and how the interest is accrued.
The online lending companies are capitalising on a need and are more focused on cashing out than ensuring proper financial requirements are followed. A situation whereby people access loans, irrespective of the amount, without some level of due diligence, especially credit checks, is unacceptable. It is high time that financial regulations are enforced to monitor the activities of these loan sharks.
People need to be more financially disciplined and accountable. Yes, things may be tough but borrowing money without a repayment plan is akin to theft. Those who do so are no different from confidence tricksters. Many of these maladies have come to be as our societal structures keep weakening because everyone is on the lookout for themselves. We will all get to the point where we discover that our actions have consequences: this is the way I see things today.