When you’re strapped for cash, it’s easy to make unwise decisions. You need a loan and while surfing the web you find a company that’s willing to lend you a few thousand dollars.
Before you agree to that, stop and think about it—the lender could be a loan shark. Quick money isn’t always good money!
With that said, if you believe you’ve become the victim of an illegal loan provider, this article is for you. Keep reading to learn all about loan sharks.
What Are Loan Sharks?
Loan sharks lend money at very high interest rates and usually threaten individuals to collect on the debt. The interest rates are typically way over the established legal rate and loan sharks are often members of organized crime groups.
Loan sharks operate on the internet, under-banked neighborhoods, and through personal connections. Their funding sources are unidentified and they work for personal businesses or unregistered organizations.
They do not require credit checks or background checks and lend large amounts of money for the sole purpose of getting more back. For example, if a loan shark lends $20,000, they’ll expect $40,000 to be repaid within a month.
What to Do If You Owe Money to a Loan Shark
Although loan sharks are intimidating, it’s important to remember that it is against the law to lend money for the purpose of profit without a consumer credit license. An entity or person who practices unlicensed lending is automatically identified as a loan shark.
If you borrow money from an illegal company, you won’t get in trouble with the law. While it’s illegal to lend money without a license, it is not illegal to borrow from a loan shark.
Also, you don’t have to repay the money. If the funds were loaned illegally, the loan shark has no legal right to collect the debt and they can’t take you to court for it.
However, if you are worried about your safety, continue to pay the loan shark until you can get help on how to move forward in the situation.
Loan Shark 101: How to Identify Illegal Practices
When borrowing money, you have to be careful. Although precaution is necessary, there are a few ways to know if you’re dealing with a loan shark. The first sign is a lack of efficient paperwork.
If the person or entity that you’re borrowing from doesn’t provide a credit agreement or record of payments, that’s a tell-tale sign. Also if they refuse to provide information on the interest rate or how much you’ll owe, that’s a red flag.
Pay attention if they take items as security deposits. For instance, if they take your passport, license, or bank card.
Furthermore, loan sharks usually increase the debt or add extra fees at any time, and they’ll deny the option for you to settle the debt.
If you receive threats, violence, or intimidation of any kind, that’s common behavior of a loan shark.
Loan Sharks vs Payday Lenders: The Difference
Similar to loan sharks, many payday loan lenders also charge high interest rates. They also require that the money be paid back in a short amount of time. However, the difference is the rates the payday loan companies charge is legal.
Standard usury laws mandate the maximum interest rate that a lender can charge in each state and the annual interest rates. Payday providers have the right to charge expensive rates because of provisions provided by state governments.
On the other hand, a loan shark charges rates that are double and triple the legal amount.
Furthermore, payday lenders are registered organizations that follow standard credit application procedures that require personal details for a credit check. They also ask for proof of employment and income. Not to mention, payday lenders base the amount that they lend off of a borrower’s income and credit.
A payday loan provider will not use intimidation or violence to collect their money. But they are known for adding so many charges that it makes it hard to repay the debt. Usually, they’ll follow the standard collection rules for delinquency and report missed payments to the credit bureaus.
Alternative Money Options
It’s normal to get in a jam financially sometimes, and it might be embarrassing to borrow from family or friends. However, that is one of the best ways to get the money you need without outrageous interest rates.
If that’s not an option for you, try borrowing a loan from a financial institution like a credit union. Many of their rates are low and you can trust them.
Unfortunately, if your credit isn’t in good standing, it could prohibit you from getting approval from the bank.
If you must use a payday lender, do your research. Shop around and look for companies that offer low interest rates. There are alternative lenders out there that provide a more affordable option for borrowing.
What is a loan shark? It’s a person or entity that you should stay far away from. These alternatives are safer and less of a hassle. Don’t get sucked in by the lure of fast cash! It’s for the best.
Keep Your Finances Protected
You work hard for your money, and even when your funds are low, you don’t deserve to be harassed. Getting entangled with a loan shark is not only unwise, but it’s pretty frustrating. Luckily, loan sharks don’t have any legal right to get the money back from you.
Did this loan shark information help you? If so, take a look at the rest of our blog. We have a variety of topics designed to keep you educated and informed. Check it out!