What you need to know about loan sharks
BY Beryn Orera
22nd May 2023 Managing your Money
From illegality to significant personal risk, here are some of the reasons you should definitely avoid borrowing from loan sharks
In England today, as many as 1.8 million people could be borrowing from an illegal money lender, according to the Centre for Social Justice (CSJ). As the cost of living rises, people or businesses may be tempted to borrow from loan sharks who offer quick and easy loans.
While borrowing from loan sharks may seem appealing at first, it can have severe consequences. This article offers valuable insights on loan sharks.
What is a loan shark?
Loan sharks are illegal lenders who often prey on individuals in urgent need of money but are unable to obtain it from legitimate sources. These lenders come in various forms, such as unlicensed moneylenders, online lenders or even friends and family members who do not follow legal lending procedures or charge high interest rates.
"While borrowing from loan sharks may seem appealing at first, it can have severe consequences"
These predatory lenders pose a significant risk to borrowers who may experience exploitation, threats of violence and personal harm if they cannot make their payments.
How do you spot a loan shark?
Loan sharks often deal in cash
Jackie Spencer, a Senior Policy and Propositions Manager at the Money and Pensions Service, outlines the following ways of spotting a loan shark:
- No paperwork: Legitimate loans come with paperwork, which loan sharks avoid at all costs.
- Cash loans: Loan sharks normally prefer dealing in cash. However, more are now using bank transfers as well. Therefore, be cautious.
- Refusing to give you information about the loan: Most loan sharks will avoid giving you clear details about your loan, such as the interest rate, previous repayment details and the total amount owed.
- Taking possessions for security: Some loan sharks may seize personal items, such as a passport or bank cards, to ensure repayment.
- Your loan keeps on growing: Loan sharks might raise the debt or impose additional charges anytime, even if you are making regular payments.
- Threats of violence: Loan sharks frequently resort to intimidation and threats to coerce borrowers into repaying. In extreme cases, they resort to violence against their victims who fail to pay.
Before borrowing from a lender, it is essential to ensure that the lender is authorised by the Financial Conduct Authority (FCA) by searching the Financial Services Register. To obtain more information, you can contact the FCA directly.
What are the disadvantages of borrowing from loan sharks?
People may borrow from loan sharks due to financial challenges, the quick and easy loans they offer and a lack of awareness about the associated drawbacks. Borrowing from loan sharks comes with many risks, according to Spencer, such as:
- Paying significantly higher interest rates than with any legal borrowing.
- Facing harassment or threats if falling behind with repayments.
- Being pressured into taking out additional loans to repay an existing one, leading to a cycle of debt that becomes unmanageable.
How do you deal with loan sharks?
“Loan sharks can trap their victims in a cycle as they never stop chasing money. Therefore, it is important you get help as soon as possible because the debt can spiral out of control very quickly,” says Spencer.
- In England, contact the Stop Loan Sharks team by calling 0300 555 2222 or by visiting their website.
- In Scotland, contact the Scottish Illegal Money Lending Unit on 0800 074 0878 or online through Trading Standards Scotland.
"If you are in immediate danger, please contact the police at 999 for assistance"
- In Wales, contact Stop Loan Sharks Wales on 0300 123 3311.
- In Northern Ireland, contact the Northern Ireland Trading Standards Service on 0300 123 6262 or by visiting their website.
Loan sharks may use intimidation or even resort to physical harm to collect debts. If you are in immediate danger, please contact the police at 999 for assistance.
Can a loan shark take you to court?
Loan sharks don't have the legal right to make you pay them back in court
Loan sharks may threaten you by saying that you will face prosecution or be sent to prison if you cannot repay the money owed. However, a loan shark does not have the legal right to make you pay them back.
What are alternative ways of borrowing money?
“We recommend credit unions or Community Development Finance Institutions (CDFIs) as alternatives to illegal lenders,” says Catherine Wohlers, a LIAISE Manager at the England Illegal Money Lending Team.
"It is imperative to borrow from licensed lenders when in need of a loan"
Charities, your local council and free debt advisors can also be resourceful during a financial crisis.
Parting shot
Borrowing from loan sharks can easily lead you into a debt trap, as they often charge exorbitant interest rates and employ coercive tactics to collect payments. Therefore, it is imperative to borrow from licensed lenders when in need of a loan.
If you are already indebted to a loan shark, seeking help immediately is advisable.
Read more: How to avoid the latest scams
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