May 21, 2024

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The Danger of Money Borrowing from Loan Sharks

Loan Sharks
According to studies, private illegal loan sharks can lend at very high interest rates, exceeding several hundred percent per annum. The difficult financial situation of some American families is taken advantage of by loan sharks, who at first seem benevolent in offering their help. But then borrowers find themselves trapped in their trap, paying off…

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According to studies, private illegal loan sharks can lend at very high interest rates, exceeding several hundred percent per annum. The difficult financial situation of some American families is taken advantage of by loan sharks, who at first seem benevolent in offering their help. But then borrowers find themselves trapped in their trap, paying off a long time imposed loan with high interest rates.

Unfortunately, every year more and more families turn to loan sharks. This seems like a profitable solution, as illegal loan sharks do not require proof of income and provide any loan amount, even to low-income families. The money can be spent quickly, but it will take a long time to pay back the loan. 

What to do in such a case? First, you need to know who loan sharks are and how they differ from banks and licensed lending institutions. You can read life stories about financial literacy in more detail at loansharks.com. This is a site with an interesting blog on the dangers of loan sharks and how to borrow money safely. 

Why are Loan Sharks Dangerous?

People turn to loan sharks to get the right amount of credit quickly without bureaucracy or delays. Often people turn to loan sharks to fix their dire financial situation. For example, if people already have loans and are unable to pay them. A loan and loan shark will only make things worse, as the money quickly received will have to be paid back with high interest.

Why you shouldn’t turn to loan sharks:

  • An unregulated interest rate that is much higher than the market rate (the rate can be 50-300% per annum);
  • Loan sharks can threaten the borrower and his or her family members if payments are late;
  • In a critical situation, to repay the debt, the loan shark will need to sell off assets or take out a new loan at even higher interest rates.

Very often a money loan to loan sharks ends in a vicious circle or the need to find a second job and refuse to make any purchases for a long time. The problem is that such money loans are not regulated or insured by anyone. It is much cheaper to pay back a bank loan. In addition, in a critical situation, you can make an official request for installment payments or temporary loan vacations. Banks value their clients and will try to solve your problems. Moreover, the representatives of banks will never threaten the family of the borrower or demand to return the money by force. This is out of the question.

How to Recognize a Loan Shark

To begin with, you need to understand that you are facing a loan shark. Study the loan offer carefully. It may contain the following conditions:

  • An offer to make a money loan without any documents or proof of income for the borrower;
  • High or suspiciously low interest rates;
  • A requirement to pledge something of value to the loan (such as car keys, property documents, passport, or driver’s license).

Loan sharks often provide a contract that spells out all the real terms in the fine print in the least obvious places. Remember that it is impossible to obtain a loan without documents. Loan sharks do not require proof of income, and this should immediately alert the borrower. 

In some cases, loan sharks artificially reduce the interest rate. It is necessary to read the loan agreement carefully in order to detect this. It is best not to sign anything on your own, but to trust a lawyer to check the documents. Otherwise, the advertising rate of 0% will in reality be more than 100% per annum. Unfortunately, there are more and more such cases.

In no case you should not give your personal belongings, documents, keys to the property to the loan shark. 

The Legality of Loan Sharks

Many people question the legality of loan sharks. Individuals providing lender services must be licensed by a national regulator. Each country has its own regulators. For example, in the UK it is the FCA (Financial Conduct Authority). It is worth checking the regulator’s website to see if the lender is licensed. 

If the lender is not accredited, you should not even let them in or use their services.

Lenders are not allowed to threaten or morally influence the borrower. Any such actions are assessed as an assault on a person’s health or life. Therefore, it is okay to go to the police if a lender tries to aggressively repay their debt. 

Legally, the lender only has the right to foreclose on the property left as collateral. But private loan sharks do not always take property as collateral, as this requires a deal to be executed with a notary. Any attempt to take the property to repay the loan is illegal.

When you use a loan shark, you don’t affect your credit history in any way (you don’t improve or worsen it). But this is more of a disadvantage, as banks will not approve a loan in the future if needed due to low activity.

How to Protect Yourself from Loan Sharks

You have the opportunity to protect yourself from the negative consequences of working with loan sharks. First, research all of your loan options if your financial situation is critical. In addition to bureaucratic banks, there are all kinds of lending institutions or government subsidies. If you can verify your needy financial situation, you will get help.

Always research lender reviews and try to talk to their customers. You can find them on information sites about loans (one such site was mentioned at the beginning of this article). 

There is special counseling help available for those who have a hard time getting out of debt. Specialists will help to understand the situation and optimize debts, as well as find a source of refinancing. Remember that many banks make concessions and can change the terms of credit, providing credit vacations. To do this, you need to make a request and confirm your insolvency. Turning to loan sharks is not a way out of even the most difficult life situation.