Disadvantages of NBFCs
1. Over-Indebtedness: NBFCs can cause low-income people to become excessively indebted. Borrowers might take out several loans from several NBFCs as there are pre-approved loan offers given to them, which could put them in a debt trap situation and make it impossible for them to repay the debt and they will fall in debt cycle to repay.
2. Harsh Repayment Method: Many customers of NBFCs are low-income people who use NBFC’s are uneducated in financial matters. They might just fall for taking out loans, which they can’t afford since they don’t completely comprehend the terms and circumstances of the loan. NBFCs have less control over them and sometimes they use unlawful and harsh methods to recover the loan.
3. High-Interest Rates: NBFCs have seen a huge drawback in the form of high-interest rates. NBFCs have charged as high as 30%. Despite offering convenient and swift loan services, the elevated interest rates dissolve the attractiveness of these offerings to potential clients.
4. Lack of Defaulter Database: NBFCs are susceptible to credit risk as there is a lack of vital information. Additionally, there is a need to bring essential legislative amendments that can leverage the utility payments database in the credit assessment process.