What Is a Loan Shark?

FT Contributor
A shady looking loan shark in a suit, smoking a cigar.

Loan sharks can be a single person or an entity that loans money at extremely high interest rates. Most of the time, loan sharks are members of organized crime groups. Their rates go well above the legally established rate of interest on a loan. Often, loan sharks use threats of violence when it comes time to collect on their debts. They may not be as dramatic as they seem in film and on television, but loan sharks can get aggressive in the real world. Learn more about how loan sharks operate and the alternative loans you can take out to avoid having to deal with them.

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How Do Loan Sharks Work?

Typically, loan sharks have connections to professionals in the financial world. These individuals are able to help loan sharks provide loans at a high rate of interest. You will typically find loan sharks in under-banked communities, on the internet, or through someone that you know personally. The money loaned to you by a loan shark often comes from unidentifiable sources. This can be a personal business the loan shark operates or another type of unregistered entity (most often an illegal operation) that they have involvement with.

Loan sharks do not do credit checks, nor do they require background checks. They will lend you any amount of money with the intent of charging an extreme amount of interest in a short period of time. Loan sharks can also raise the interest rates whenever they feel like it, altering your agreement whenever they want. This can make it extremely difficult for you to pay back your loan in a timely fashion and is one of the main reasons borrowing from a loan shark is so volatile.

When it comes time to repay your loan, you may not be able to do so. A loan shark will take whatever they feel they are owed, which can include confiscating your personal belongings — like passports or IDs — for collateral. Sometimes, loan sharks will even resort to violence or physical harm if they are not repaid on time and on their terms.

Are Loan Sharks Illegal?

Technically, because lending money without a license is illegal, being a loan sharks is illegal. The term “loan shark” generally refers to illegal lenders or predatory lenders. Most loan sharks operate without a license. This is so they can charge interest above the regulated rate. To ensure you’re not dealing with a loan shark, do your research before you take out a loan. Check to see if the lender you’re working with is licensed. In most cases, dealing with a loan shark is illegal, so it’s best to seek out an alternative source of funding.

How to Find a Loan Shark

It is a good idea to stay wary of these types of businesses. Loan sharks can be found virtually anywhere, whether online or in-store. Often, their businesses are associated with terms like “instant approval” and “no credit checks.” When you’re obtaining a loan, loan sharks provide you with little to no paperwork or record of your transaction. They refuse to give information about your agreement, including details like the interest rate. Loan sharks are also known for tacking on additional charges or increasing your interest rate without warning. Sometimes, a loan shark will refuse to let you settle your debt and may resort to intimidation tactics, threats, and in the worst case, violence.

Alternative Options to Loan Sharks

Before you turn to a loan shark for money, know that there are other options that allow you to obtain cash quickly. Payday loans, title loans, and tax advance loans are all legal options that can help you acquire the funds you need. To get a payday loan, you write a check for the amount you need, plus a fee, depending on the amount you’re borrowing. Payday loans can charge up to 400% in annual interest, but loan sharks often charge more than that. Despite high interest rates, payday loans are a better option because they follow standard credit approval procedures and usually base the principal balance off of your income and credit profile.

Title loans are another alternative to the bad loans that loan sharks provide, as are tax advance loans. With title loans, you need to provide a car title to the lender as collateral and pay a fee based on the amount that you borrow. You typically have 30 days to repay what you owe on the loan. With a tax advance loan, you borrow against the income tax refund you’re going to get before it is processed by the IRS. While the applications for these loans take more time than it would take to apply for a loan from a loan shark, they follow standard procedures and protect you if a conflict arises.

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