In 2022, I was living in Stockholm. One evening, a Swedish friend of mine, 24 years old, working her first job at a design studio, mentioned over dinner that she was taking a loan to buy a used car.
What struck me was not the loan. It was how she talked about it.
She knew her exact interest rate. She knew what she would pay in total over three years. Her bank had shown her a comparison of three loan options, told her which one suited her income, and actually recommended the cheapest one, not the one that made them the most money. The entire decision took her twenty minutes, and she walked away feeling like the system was on her side.
I could not help comparing it to my own first loan.
I bought my first car the previous year, in August 2021. Through the entire process, the interest rate I was quoted stayed vague. Around 7.5 to 7.9 percent, I was told, depending on approval. I asked more than once. The answer was always a range, never a number. It would be confirmed at sanction, they said.
When the loan papers finally arrived, the rate was 8.2 percent. Higher than anything I had been quoted. And by then, the loan was sanctioned, and I was told nothing could be done.
When I pushed back and said that if I had known this number earlier I would have gone to another bank, something interesting happened. The agent handling my loan said, let me compensate you, I will cut the processing fee in half. That is in my hands.
Think about what that sentence reveals. A discount worth thousands of rupees existed the entire time. It was never offered. It surfaced only as a pacifier, only after I resisted, only because I happened to push. How many borrowers never push? How many never find out what was quietly in the agent’s hands all along?
That experience taught me something I have never forgotten. In Indian lending, ambiguity is not an accident. It is the sales strategy. The agent’s incentives point toward the lender, always. The customer is not the client. The customer is the product being closed.
And mine was a car loan from a mainstream NBFC (publicly listed), among the most regulated, most competitive corners of Indian lending. A recent investigation by The Ken shows what happens at the other end of the spectrum, where the borrower has less education, less leverage, and far fewer options.
Users in India are paying up to 600% annual interest on loans. Not from illegal apps. Not from loan sharks operating in the shadows. From RBI-licensed, board-approved, fully compliant non-banking financial companies.
Let me make that concrete, because percentages hide the human reality.
Imagine a delivery executive in Pune. Call him Ravi. His scooter breaks down, and he needs 35,000 rupees to fix it, because without the scooter there is no income. He searches online, finds a website that looks legitimate, applies, and gets approved in minutes. The sanction letter is issued by an RBI-registered NBFC. Everything is legal.
Here is what his loan actually looks like. Sanctioned amount, 35,000. Processing fee and GST deducted upfront, 4,130. What lands in his account, 30,870. What he must repay seven days later, 37,450.
He borrowed 30,870 rupees for one week and paid 6,580 for the privilege. Annualised, that works out to over 880%.
Ravi does not know this number. Nobody showed it to him. What he saw was money in his account within ten minutes, and a repayment amount that felt just about manageable. That is the entire information environment in which he made his decision.
If a law graduate buying a car from a mainstream bank could not get a straight answer about an interest rate, what chance does Ravi have against a lender whose entire model depends on him not understanding the terms?
The mechanics behind this are worth understanding, because they reveal that this is not a few bad actors. It is a playbook.
You can buy an NBFC license off a website. Listings openly advertise decades-old registered NBFCs for sale, starting at under 2 crore rupees. The older the license, the higher the price, because an older company draws less regulatory attention. Buy one, spin up a few lending apps with names that sound trustworthy, run some ads, and you are in business.
And business is extraordinary. One such NBFC went from about 1.7 lakh rupees in annual revenue to 81 crore in a single year. Another grew 500x over the same period. These are not typos. This is what happens when you lend at 1% per day to people who need money urgently and do not read sanction letters.
The model has a second layer that makes it darker. The same NBFC often operates four or five different lending apps under different brand names. When a borrower cannot repay one loan, they receive an offer from what looks like a different lender, happy to help them cover it. It is the same company. The borrower takes a second loan to repay the first, then a third to repay the second. The Ken found one borrower repaying 6 lakh rupees a month across eight different apps, most of them tracing back to the same handful of NBFCs.
A default, in this model, is not a lost customer. It is a repeat customer.
The natural question is, where is the regulator in all this?
Here is the uncomfortable answer. In March 2022, the RBI made a deliberate choice to deregulate interest rates for NBFCs, trusting competition to keep pricing fair. Rates, the reasoning went, would be governed by board-approved interest rate policies at each NBFC.
The theory was reasonable. The practice is that an NBFC’s board can approve a 600% APR, document it in a policy, and be entirely compliant. Of the 25 NBFCs The Ken examined, only 12 had anything resembling a published interest rate policy, and only 6 of those explained how they actually arrive at their rates.
And when a borrower complains? Many of these smaller NBFCs are not covered under the RBI’s Integrated Ombudsman Scheme. Complaints get routed to the Consumer Education and Protection Cell, which forwards the complaint to the very NBFC being complained about. The lender investigates itself, finds a caution-worthy lapse at most, and the matter is closed. Borrowers describe this loop with a resignation that should worry everyone in this industry.
Compare this to what I saw in Europe. When my Swedish friend took her car loan, she was protected by affordability regulations that required the lender to verify she could actually repay without hardship. In the UK, the FCA capped the total cost of payday loans years ago, so that no borrower can ever repay more than double what they borrowed, no matter what. These are not perfect systems. But they start from a simple premise, that the person with less information and less power deserves structural protection.
India’s digital lending stack, the payments infrastructure, the Account Aggregator framework, the sheer reach, is genuinely world-class. I have seen both systems up close, and our rails are better than most of Europe’s. What we have not yet built is the layer that stands between those rails and the borrower, making sure the power of the system works for them and not on them.
It would be easy to read all this as a story about a few predatory lenders, feel angry for a day, and move on. I think that misses the real cost.
Every Ravi who gets trapped in a loan cycle learns one lesson permanently: do not trust lending apps. He tells his friends. His family hears about it. And the next time a genuinely fair, transparent, well-priced credit product reaches him, he assumes it is another trap.
My car loan story ended with a smaller processing fee and a lesson learned. Ravi’s story ends with a debt cycle. But both stories teach the borrower the same thing, that the system holds information back from you, and that whatever the agent is offering, there is probably a better deal being kept quietly in someone’s hands.
Predatory lending does not just harm its direct victims. It poisons the well for the entire credit ecosystem. India has hundreds of millions of people entering the formal economy who will, at some point, need credit for entirely legitimate reasons. A scooter repair. A medical bill. A course fee. Whether their first experience of formal credit builds trust or destroys it will shape this country’s lending economy for a generation.
That is the actual stake here. Not one news cycle about interest rates, but whether India builds a lending economy people can trust.
This article is the first in a seven-part series we are calling Lending, Reimagined. Over the coming weeks, we will look at how India’s lending landscape evolved to this point, what borrowers actually experience and want, where fintech went wrong despite all its promise, what a genuinely user-first lending model looks like, what regulators could do next, and why we believe trust-first lending is not just better for users but a better business.
We are writing this series because we are building in this exact space, and we believe the problems are fixable. Not with outrage, but with better models.
The first step is seeing the problem clearly. That was this article.
Next in the series: How We Got Here — A Short History of Digital Lending in India. (link will be updated as we publish the article)
In 2022, I was living in Stockholm. One evening, a Swedish friend of mine, 24 years old, working her first job at a design studio, mentioned over dinner that she was taking a loan to buy a used car.
What struck me was not the loan. It was how she talked about it.
She knew her exact interest rate. She knew what she would pay in total over three years. Her bank had shown her a comparison of three loan options, told her which one suited her income, and actually recommended the cheapest one, not the one that made them the most money. The entire decision took her twenty minutes, and she walked away feeling like the system was on her side.
I could not help comparing it to my own first loan.
I bought my first car the previous year, in August 2021. Through the entire process, the interest rate I was quoted stayed vague. Around 7.5 to 7.9 percent, I was told, depending on approval. I asked more than once. The answer was always a range, never a number. It would be confirmed at sanction, they said.
When the loan papers finally arrived, the rate was 8.2 percent. Higher than anything I had been quoted. And by then, the loan was sanctioned, and I was told nothing could be done.
When I pushed back and said that if I had known this number earlier I would have gone to another bank, something interesting happened. The agent handling my loan said, let me compensate you, I will cut the processing fee in half. That is in my hands.
Think about what that sentence reveals. A discount worth thousands of rupees existed the entire time. It was never offered. It surfaced only as a pacifier, only after I resisted, only because I happened to push. How many borrowers never push? How many never find out what was quietly in the agent’s hands all along?
That experience taught me something I have never forgotten. In Indian lending, ambiguity is not an accident. It is the sales strategy. The agent’s incentives point toward the lender, always. The customer is not the client. The customer is the product being closed.
And mine was a car loan from a mainstream NBFC (publicly listed), among the most regulated, most competitive corners of Indian lending. A recent investigation by The Ken shows what happens at the other end of the spectrum, where the borrower has less education, less leverage, and far fewer options.
Users in India are paying up to 600% annual interest on loans. Not from illegal apps. Not from loan sharks operating in the shadows. From RBI-licensed, board-approved, fully compliant non-banking financial companies.
Let me make that concrete, because percentages hide the human reality.
Imagine a delivery executive in Pune. Call him Ravi. His scooter breaks down, and he needs 35,000 rupees to fix it, because without the scooter there is no income. He searches online, finds a website that looks legitimate, applies, and gets approved in minutes. The sanction letter is issued by an RBI-registered NBFC. Everything is legal.
Here is what his loan actually looks like. Sanctioned amount, 35,000. Processing fee and GST deducted upfront, 4,130. What lands in his account, 30,870. What he must repay seven days later, 37,450.
He borrowed 30,870 rupees for one week and paid 6,580 for the privilege. Annualised, that works out to over 880%.
Ravi does not know this number. Nobody showed it to him. What he saw was money in his account within ten minutes, and a repayment amount that felt just about manageable. That is the entire information environment in which he made his decision.
If a law graduate buying a car from a mainstream bank could not get a straight answer about an interest rate, what chance does Ravi have against a lender whose entire model depends on him not understanding the terms?
The mechanics behind this are worth understanding, because they reveal that this is not a few bad actors. It is a playbook.
You can buy an NBFC license off a website. Listings openly advertise decades-old registered NBFCs for sale, starting at under 2 crore rupees. The older the license, the higher the price, because an older company draws less regulatory attention. Buy one, spin up a few lending apps with names that sound trustworthy, run some ads, and you are in business.
And business is extraordinary. One such NBFC went from about 1.7 lakh rupees in annual revenue to 81 crore in a single year. Another grew 500x over the same period. These are not typos. This is what happens when you lend at 1% per day to people who need money urgently and do not read sanction letters.
The model has a second layer that makes it darker. The same NBFC often operates four or five different lending apps under different brand names. When a borrower cannot repay one loan, they receive an offer from what looks like a different lender, happy to help them cover it. It is the same company. The borrower takes a second loan to repay the first, then a third to repay the second. The Ken found one borrower repaying 6 lakh rupees a month across eight different apps, most of them tracing back to the same handful of NBFCs.
A default, in this model, is not a lost customer. It is a repeat customer.
The natural question is, where is the regulator in all this?
Here is the uncomfortable answer. In March 2022, the RBI made a deliberate choice to deregulate interest rates for NBFCs, trusting competition to keep pricing fair. Rates, the reasoning went, would be governed by board-approved interest rate policies at each NBFC.
The theory was reasonable. The practice is that an NBFC’s board can approve a 600% APR, document it in a policy, and be entirely compliant. Of the 25 NBFCs The Ken examined, only 12 had anything resembling a published interest rate policy, and only 6 of those explained how they actually arrive at their rates.
And when a borrower complains? Many of these smaller NBFCs are not covered under the RBI’s Integrated Ombudsman Scheme. Complaints get routed to the Consumer Education and Protection Cell, which forwards the complaint to the very NBFC being complained about. The lender investigates itself, finds a caution-worthy lapse at most, and the matter is closed. Borrowers describe this loop with a resignation that should worry everyone in this industry.
Compare this to what I saw in Europe. When my Swedish friend took her car loan, she was protected by affordability regulations that required the lender to verify she could actually repay without hardship. In the UK, the FCA capped the total cost of payday loans years ago, so that no borrower can ever repay more than double what they borrowed, no matter what. These are not perfect systems. But they start from a simple premise, that the person with less information and less power deserves structural protection.
India’s digital lending stack, the payments infrastructure, the Account Aggregator framework, the sheer reach, is genuinely world-class. I have seen both systems up close, and our rails are better than most of Europe’s. What we have not yet built is the layer that stands between those rails and the borrower, making sure the power of the system works for them and not on them.
It would be easy to read all this as a story about a few predatory lenders, feel angry for a day, and move on. I think that misses the real cost.
Every Ravi who gets trapped in a loan cycle learns one lesson permanently: do not trust lending apps. He tells his friends. His family hears about it. And the next time a genuinely fair, transparent, well-priced credit product reaches him, he assumes it is another trap.
My car loan story ended with a smaller processing fee and a lesson learned. Ravi’s story ends with a debt cycle. But both stories teach the borrower the same thing, that the system holds information back from you, and that whatever the agent is offering, there is probably a better deal being kept quietly in someone’s hands.
Predatory lending does not just harm its direct victims. It poisons the well for the entire credit ecosystem. India has hundreds of millions of people entering the formal economy who will, at some point, need credit for entirely legitimate reasons. A scooter repair. A medical bill. A course fee. Whether their first experience of formal credit builds trust or destroys it will shape this country’s lending economy for a generation.
That is the actual stake here. Not one news cycle about interest rates, but whether India builds a lending economy people can trust.
This article is the first in a seven-part series we are calling Lending, Reimagined. Over the coming weeks, we will look at how India’s lending landscape evolved to this point, what borrowers actually experience and want, where fintech went wrong despite all its promise, what a genuinely user-first lending model looks like, what regulators could do next, and why we believe trust-first lending is not just better for users but a better business.
We are writing this series because we are building in this exact space, and we believe the problems are fixable. Not with outrage, but with better models.
The first step is seeing the problem clearly. That was this article.
Next in the series: How We Got Here — A Short History of Digital Lending in India. (link will be updated as we publish the article)
