When people wishing to borrow money cannot obtain credit from any of the normal sources – whether personal loans, overdrafts, credit cards, payday loans or even pawnbrokers – they sometimes, unfortunately, turn to loan sharks.
What are Loan Sharks?
Loan sharks are doorstep money lenders that are both unlicensed and illegal: they do not have a license to lend money, and are usually regarded by the authorities as criminals. Indeed, loan sharks may be identified by their willingness to use criminal activities as part of their operations: they are on record as using threats, blackmail and violence to ensure that debt repayments continue to be made.
Loan sharks may also be identified by the cost of borrowing from them. Interest rates from loan sharks tend to be extremely high; sometimes thousands of percent. This can mean that once a borrower has taken debt on it may become impossible to repay.
Problems with Loan Sharks
The lack of ability to pay back debt is one of the main problems borrowers have when dealing with loan sharks. The vast majority of people that resort to them are on a low income, often with a poor credit rating; it’s often for these reasons that they’ve borrowed from loan sharks in the first place. Once they borrow, they are unable to keep up payments due to the extortionate interest rates charged, and can feel unable to default due to the threats employed by many loan sharks. Often borrowers in this position find themselves taking on other debts (sometimes even from the same loan sharks), often at even higher interest rates. This leads to a vicious circle in which debts rise and rise, even when payments are made. It is not unheard of for an original debt of a couple of hundred pounds to turn into a debt of tens of thousands of pounds in this manner.
Another problem with loan sharks is that they are often doorstep lenders embedded in the communities in which they operate. Their knowledge of the community makes it easier for them to intimidate debtors; those they target often feel isolated and without support.
Dealing with Loan Sharks
The best way to deal with loan sharks is to try to avoid borrowing from them in the first place. There are usually options for borrowers before approaching loan sharks, such as contacting local credit unions, approaching peer to peer lenders or applying for bad credit loans. Risky as the latter may be, they are preferable to loan sharks. Borrowers in this situation are also advice to seek free debt advice on debt management, which is available from a number of charities.
If a debtor has already borrowed from a loan shark, however, the best course is to report them to the authorities. In the United Kingdom this can be done through this government web page: report a loan shark (link). Any successful prosecution of a loan shark will mean they are unable to act as a lender, and it is highly likely that any money borrowed from them will not have to be repaid.
Legal Loan Sharks
Some legal lenders offer rates that are so high they are sometimes referred to as legal loan sharks, and as a result many debt advisors warn against using them. These lenders – which can include payday loan lenders, legal doorstep lenders and pawnbrokers – should be approached with caution.