Abstract

Digital lending has transformed credit access, providing quick app-based loans to the underprivileged, such as poor persons and small merchants in countries such as India, Kenya, and the United States. Yet behind this convenience lies a burgeoning debt trap crisis fueled by high interest rates (200-500% per annum), brief payment terms, secret charges, and coercive collection practices. The dual aspect of online lending—its potential to cause financial inclusion as well as its threat of legal exploitation because of archaic regulations and poor regulation- is a theme addressed by this article. Through case studies like Anitha in India and João in Brazil, as well as statistical figures pointing to high default rates (like 65% in Kenya), it brings out the human as well as economic cost, such as mental health emergencies and lost consumer spending. Analysis is drawn between international regulatory reactions, ranging from India's DIGITA agency plan to the EU's Consumer Credit Directive, and the newer technologies such as AI and blockchain, which present opportunities and threats alike. Peer-to-peer lending and microfinance cooperatives are suggested in addition to technology-based instruments such as loan monitoring apps for empowering borrowers. The article calls for increased regulation, better financial literacy, and collaboration between stakeholders in order to turn digital lending into a means of empowerment and not exploitation.

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