The Dangers of Dealing with Loan Sharks

Loan sharks charge outrageous rates and use unethical and illegal practices to con consumers. Some providers charge up to 100 percent in interest.


Loan providers often assess upfront fees and offer loans with very short terms. They use violence, threats, and other illegal practices to collect the money owed. Some loan sharks even confiscate ID cards and other documents as a guarantee of repayment. The reason is that borrowers are not legally bound to pay off the loan. Sharks usually stalk older people and promise “instant approval”, “no credit check”, and “cheap loans”. They also target minorities, temporary workers, desperate people who are short of cash, and low income borrowers who are knee-deep in debt. Many of them operate illegally meaning that they are not licensed or certified. It always pays to check whether the provider is licensed.

Loan sharks often target victims with expired tourist visas and residence permits, those with pending police cases, and debtors who have been blacklisted by conventional financial institutions. Illegal loan providers take advantage of the fact that some people will not contact the police because they risk being deported. They may collect the borrower’s ATM card, driver’s license, or passport. In general, illegal lenders pray on the weaker members of society – those with serious debt problems, poor financial literacy, and irregular income.

Differences between Loans Sharks and Payday Lenders

One of the main differences is that illegal loan providers use harassment, intimidation, and threats of violence to recover debt. They may use illegal means to seize property and recover debt. With payday lenders, debts are cleared after filing for bankruptcy. This is not the case with loan sharks. Your credit score may be affected if you are dealing with a payday lender and are unable to pay off the loan. With illegal lenders, failure to repay has no effect on your credit score. The reason is that illegal providers are unregulated and have no legal right to collect unpaid debt. In addition to escalating charges and fees, non-payment has other consequences. The debt often balloons and providers take advantage of victims.

Why People Resort to Loan Sharks

Speed, ease, and convenience are some of the main reasons. Unlike other providers that have strict lending criteria, illegal lenders offer instant decision loans and have lenient criteria. People who need urgent cash and borrowers who have been turned down by conventional lenders often feel tempted to get a quick loan. Many customers have a low credit score and few other options. Borrowers with foreclosures, missing loan payments, and delinquent accounts also apply for short-term loans. Consumers with maxed out cards, arrears, and other financial worries also resort to high-interest loans. Loss of employment, loss of income, prolonged illness, lack of health insurance, divorce, and death in the family are other reasons why people contact loan sharks. Some people borrow on more than one occasion which leads to a reliance on quick loans. The problem is that this is a quick fix and a short-term solution. Borrowers with serious financial problems may become trapped in debt.

Reasons to Avoid Loans from Illegal Providers

One reason to avoid loans from illegal lenders is the high APR which makes them very expensive. Lenders also assess very high penalty fees. While lenders claim that short-term loans to bad credit borrowers are risky, this doesn’t change the fact that it is very expensive to borrow. There are better alternatives such as payday lenders, bad credit lending services, issuers that offer prepaid credit cards, and credit unions. Credit unions encourage members to save money and offer very low rates of about 1 percent a month. With loan sharks, the short repayment term is another reason to avoid illegal lenders. In addition, repaying the loan within the agreed period involves a huge amount of stress and pressure. Another reason is that predatory lenders use blackmail and coercion, and some of them are part of the underworld. Unethical practices are often used to recover debt which, again, carries a huge amount of stress. Some lenders pressure customers to obtain a new loan to pay off the old debt. Customers are under no obligation to repay the loan, and non-payment is not considered a legal offence. Loan sharks sometimes threaten borrowers with jail and legal prosecution which is a very stressful experience. If you are harassed, make sure you contact the police or local authorities. Better yet, avoid predatory lenders altogether and contact reputable and licensed providers that offer reasonable rates.

Signs That You Are Dealing with a Loan Shark

There are many red flags to watch for. One is that the lender fails to provide paperwork in the form of record of payments, loan agreement, and license. Other lenders offer plenty of paperwork with ambiguous and confusing terms. The fact that the provider hides or fails to disclose information such as penalty charges and interest rates is another warning sign. Many providers charge hidden fees while rates can be as high as 1.5 percent a day. The interest rate can be as high as 400 percent and additional charges apply. The fact that your loan provider is unwilling to settle your debt is another red flag. Keep in mind that some loan sharks operate online while others have brick-and-mortar stores and offices.

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