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Loan Sharks: How They Might Swallow You


An individual who offers loans at exorbitantly high-interest rates, imposes stringent terms of collection upon default, and generally operates illegally is known as a loan shark.

Loan sharks are a type of informal lender. They’re illegal, but they’re everywhere. Many people resort to them out of desperation, and it’s rarely worth it. Loan sharks can be vicious and predatory and take advantage of anyone who falls into their clutches.

If you require a loan, there are many ways to get it. For example, you can turn to friends, family members, and banks. Nonetheless, not every lender is trustworthy. Some people may try to take advantage of you by offering loans at exorbitant rates or terms.

Loan sharks are not only present in underdeveloped nations. They are present all over the planet. Many contend that Americans are more likely to deal with loan sharks than residents of other nations. In these other nations, there are fewer opportunities for achieving financial independence or expanding one’s own business.

Possible Traits of Loan Sharks

  1. High-Interest Rates: The lending regulations and banking legislation, which frequently limit banks to interest rate caps, do not apply to these loan sharks as to regular banks. Banks typically charge a yearly rate as well, which is more predictable. Often illegal, the loan shark industry aims to take advantage of borrowers.
  2. Hefty Fees and Sanctions: The fees and penalties for default that loan sharks impose are extremely exorbitant and frequently ambiguous. Banks will reveal their fees and penalties upfront, but most loan sharks do not.
  3. Short Repayment Terms: Loan sharks will frequently choose to lend for the shortest period feasible. This is because they want to make quick money and lend to as many people as possible. On the other hand, banks charge interest annually. You can also renegotiate your loan if you run into issues that interfere with your timetable and repay it over time.
  4. Unclear Location or Address: While some loan sharks operate online, others may do so in unlisted offices or streets. The majority of enterprises are unregistered and run illegally. On the other hand, financial institutions like banks all have registered offices. Therefore, borrowers can visit any bank’s locations to clarify any issue.

The difference between Banks and Loan Sharks

Loan sharks operate in an entirely different industry than banks. Banks store money on behalf of customers and then use it to provide services.

Your deposit is combined with many other people’s money in a large pool, and the bank keeps track of how much of that is yours. Then, when you ask for some of it back, they give it to you from the large pot and update their records accordingly. 

In addition to holding money on deposit, banks can also keep tradable assets like stocks, bonds, and other securities. Many of the same principles are relevant.

Banks are particularly concerned about their reputation for dependability and credibility because they are in the business of holding other people’s money. They don’t want the owners of the money they are saving to feel that they should not have it and that they should come and take it. As a result, when handling other people’s money, they tend to be highly cautious and risk-averse. Even after considering the danger of default, they look into whom they are lending to and charge interest rates that they believe will result in a fair profit. They are also strictly regulated.

A loan shark is unique. They only provide loan services, and they do so using their funds rather than a sizable group of other people. They compete with banks, but they frequently deal with customers that banks don’t want to (such as those who are already in debt, have low incomes, have low legitimate incomes, and many more) because these customers pose too great a danger for the banking industry as a whole. 

Loan sharks cannot offer loans to as many borrowers or in amounts as significant since they use their funds rather than a sizable pool of other people’s funds. The danger of default is considerable since loan sharks are lenders of last resort. Loan sharks demand high-interest rates as payment for the few high-risk borrowers they have access to. 

Loan sharks mainly deal in cash; they mostly do not accept checks, debit cards, or wire transfers because they aren’t connected to the financial networks or subject to the same rules as banks. In addition, loan sharks have little power to collect on debts through the courts and frequently break local laws, so they must rely on other, less legal enforcement methods.

How to Identify Loan Sharks

  1. Most of them communicate to their consumers in an unprofessional and disrespectful manner because they lack communication ethics.
  2. They request access to personal information such as your mobile phone’s contact list and photos.
  3. They violate the privacy of their customers’ data and threaten them over calls and text messages.
  4. They have significantly high-interest rates and a short repayment period.
  5. Most of these services subtract their interest before releasing the loan.
  6. When their clients don’t pay them back, they harass them.
  7. To recoup their money, they employ illegal methods.

Reasons Why You Should Not Obtain Loans From Loan Sharks

  1. Loan Sharks Might Harass You. When you borrow money from a loan shark, they will ask you for personal information like your home address and even the schools your kids attend. If you cannot repay your loan on time, the loan sharks use all of these information to harass you and your family in the future. Additionally, they might damage your personal property. The last thing you need when your finances are tight is constant harassment from loan sharks. It can interfere with your daily routine, cause you and your family more stress, and even sour your relationship with relatives. 
  2. You might be unable to repay the loan you took from a loan shark. Loan sharks demand several expenses, such as processing fees, late, hidden, and any other fees that make it impossible to pay off your debt, unlike banks and authorized money lenders. Their exorbitant interest rates and late payment penalties will also hasten the snowball of your debt. Some people have even resorted to taking out multiple loans from different loan sharks to pay off the debt they accrued from borrowing from one loan shark after another. This results in an increase in debt, which feeds a cycle of borrowing that can go on for years.
  3. There are better and safer alternatives to borrowing from loan sharks. The wisest course of action for people in a time of financial difficulties is to borrow from a loved one, either a family member or a friend, instead of turning to loan sharks. However, since many friends and relatives may not be financially stable enough to help, this might not be possible for everyone.

So here are a few substitutes:

Give a pawn shop your valuables as security. A broker will lend you money depending on the value of your treasured item when you pledge it at a pawn shop. Your treasure items can be a diamond ring or gold bracelet or other value items that you possess. The amount often lent to you ranges from 60 to 80 percent of the item’s evaluated worth. Since your valuable item will be used as collateral, pawn shops do not require an assessment of your income. Nevertheless, your loan’s maximum amount will be constrained by the item’s value.

  • Apply for a personal loan at a bank. When you borrow money from a bank, several different loan alternatives are available. In addition, the fact that you are borrowing from a highly regulated institution gives you further reason to feel secure. 
  • Borrow from a licensed money lender. In contrast to loan sharks, authorized money lenders are subject to stringent restrictions and regulations in many nations. This contrasts with loan sharks, notorious for charging high-interest rates that rise if you miss a payment. Additionally, a legitimate money lender won’t harass you like a loan shark or ask for money from your friends or relatives. Additionally, a formal contract must be supplied to you, and the terms must be disclosed before you accept a personal loan.
  • Second-chance Banking: For persons with a messy credit history, banks frequently offer a simplified form of a checking account. Although credit checks are typically skipped during the sign-up process, some restrictions exist. For instance, those who hold these bank accounts usually lack access to debit cards, which might help them avoid overdraft penalties. Additionally, they typically have reduced minimum balance requirements and monthly fees.
  • Secured Credit Cards: This is an additional alternative for those with a weak credit history. These credit cards have a security deposit you make as collateral when you open the card. As a result, these credit cards frequently overlook horrible credit histories or credit problems. In addition, the minimum security deposit will typically vary depending on the credit card. Still, you can receive your money back when you terminate the card.


Preventing debt altogether is the most excellent strategy to stay away from loan sharks. These folks will eventually contact you to take loans from them if you cannot avoid debt and handle your finances appropriately. However, if you’re in a desperate situation and can’t think of any other option, at least be prepared for when you take loans from them. You can get out of difficulties by repaying your loan as quickly as possible.

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