Instant loan apps have been on the rise. This is especially true in developing countries, where significant portions of the population live paycheck to paycheck and often need quick money to cover their immediate needs.

Taken at face value, they seem harmless enough, if not beneficial. It’s just a platform for borrowing money—what could go wrong?

But there have been countless stories where these apps, intentionally or not, lure struggling people into deep inescapable holes of debt. 

This isn’t to say that there’s no place for instant loan apps in the financial industry. However, everyone must be made aware of the serious risks and dangers involved with using them.

The Appeal of Instant Loans

Two things make loan apps appealing: convenience and speed. 

On the other hand, traditional loans take time. They:

  • Have lengthy application processes
  • Require strict documentation
  • Involve strict background checks

Some people just don’t have the time for that.

Instant loan apps, on the other hand, offer you money in a few clicks.

For borrowers facing unexpected expenses, have bills due immediately, or have limited credit history, it might be their only option.

The True Long-term Cost of Convenience

The cost of such convenience?

High interest rates. Very high interest rates. 

Interest rates on these loans often range from 20% to well over 100% annually—drastically higher than traditional bank loans.

But that’s not all. Many of these apps implement several hidden fees, like:

  • Service charges
  • Late fees
  • Processing costs

A borrower who takes out $1000 can find themselves owing hundreds and hundreds more if they can’t pay promptly. 

The worst thing about this is that for many people, borrowing can end up as a vicious cycle. 

Imagine someone borrowing money for an expense, but aren’t able to pay back the loan with the high interest rates. 

They then borrow an even higher amount to cover the loan and its interest rates—which they again cannot pay due to the interest rates, and therefore need to borrow again. 

Repeat ad infinitum. The amount owed just keeps increasing as the interests compound and continually mount over time. This is known as a “debt trap,” and many, many people have fallen into it.

Data Privacy Risks

But in addition to financial risks, instant loan apps also raise significant privacy concerns. 

Many of these apps require extensive phone permissions, so users need to allow access to personal data like their contacts, call logs, and browsing history. 

While some apps claim such personal information is needed for record-keeping and credit assessment, the extent of data collection goes far beyond traditional loan applications.

App representatives then use such data to do things like contacting and harassing the borrower’s friends and family. Sometimes, they even use it for more extreme things, like blackmail.

Despite this, it’s not like most borrowers have a choice. When given the option between getting evicted due to not paying rent or giving up their data privacy, most would give up the latter.

Some people may look for the best VPN with free trial options to protect their data. This can work to some extent. At the end of the day, you’ll still need to give them your information if you want the money.

The Psychological Toll

But aside from the direct financial toll of these loan apps, borrowers often get extremely stressed out as they fall deeper and deeper into the debt trap.

And when people are incredibly stressed out, their decision-making and productivity are compromised. They may end up borrowing from loan apps even more or be less productive at work, leading them to make even less money.

All these factors put together lead borrowers to spiral down even more—and it can eventually completely destroy them.

The Lack of Regulation and the Need for Financial Education

As we’ve said before, we don’t believe that instant loan apps don’t have their place. There will always be people who can greatly benefit from them.

However, there is a severe lack of regulation with regard to these loan apps. Such minimal oversight allows them to be predatory, side-stepping legal and ethical interests, and leaving borrowers—many of whom are already vulnerable—with limited protections.

But the more long-term solution is financial education. Financially literate people are far less likely to take up such kinds of debt—and even less likely to get themselves in financially precarious positions to begin with. 

Conclusion

Instant loan apps can get people help quickly—but too often, they are the cause of people spiralling into debt trapt and psychological stress. As we said, stricter regulation and better financial education are key. 

And if you’re considering using these, we advise extreme, extreme caution. Even if you feel like you have no choice but to use them, we strongly suggest looking for other alternatives first.