The availability of easy credit pushes many borrowers into the debt trap. A startup aims to create a new business by helping borrowers get out of debt. Currently, enrolling delinquent consumers with unsecured loan accounts, who are experiencing financial difficulties but seeking to regain their creditworthiness, Gurgaon-based FREED plans to launch several new debt relief products. In an FE PF Desk email interaction, Ritesh Srivastava, founder and CEO of FREED, explains how the startup helps borrowers. Edited excerpts:
How do you help borrowers get out of the debt trap?
Borrowing money or going into debt doesn’t always have to be harmful. However, having a large amount of debt can be overwhelming, especially if it exceeds the borrower’s ability to repay it. This is where we come in. Offering the borrower a personalized debt relief solution, we help borrowers settle their debt. Debt settlement is a form of debt relief that works by negotiating with creditors to get a repayment agreement that amounts to less than the balance owing (principal) on your unsecured loan accounts.
Consumers looking to break free from debt are encouraged to set aside funds in a special purpose account that provides savings while our team negotiates with creditors for the most favorable settlements.
Currently, the total default on unsecured personal loans is in the range of Rs 2 lakh crores. Most creditors are willing to discuss settlement if accounts remain unpaid for a long period of time, usually 150-180 days. Accepting a partial payment is more advantageous for the creditor, rather than deleting the account. Other options for creditors are to continue to collect from borrowers through collection agencies or to sell the debt to an CRA. However, these two options give a much lower recovery rate for the creditor compared to the 45% that FREED is able to offer them.
Also read: When to use a personal loan and when to avoid it
What are your observations on why people fall into the debt trap?
Retail credit is growing at a rapid rate of 14% CAGR and with the advent of BNPL, the total value of debt in India has increased significantly. At the same time, we see people falling into the debt trap for different reasons – job loss, pay cut, medical emergency, business losses, or simply overspending and life on the wane. beyond their means.
Unfortunately, Gen Z and Millennial Indians find themselves increasingly debt-ridden, largely due to their lack of credit literacy and lack of financial literacy. So, in a time when life is indeed full of twists and turns, we believe everyone deserves a fair shake in life.
What fees do you charge to help borrowers?
We charge a service fee of 10% of the debt registered by the consumer and a monthly subscription fee for the platform. Service charges are only charged when the debt is settled. We do not charge our fees in advance. This is because we would like our customers to believe that we are together with them. If we don’t pay, they don’t pay.
How many borrowers have you helped?
We have advised over 45,000 consumers and registered over 8,500 consumers.
Read also: Borrowing: Need funds? You can opt for a loan against the property
What are the sources of income for your start-up?
Our source of revenue is a 10% service fee, only if we successfully settle consumer debt, and a monthly platform subscription.