Loan Sharks Explained
Right now, many small businesses are having a hard time paying all of their expenditures, notably payroll. Payroll is not one of the expenses that may be extended or put on credit, despite the fact that there are many other payments that can. If your company is short on cash, you should know that there are reputable sources you may approach who will quickly provide you with the money you require.
Gradual mortality, a financial hole one won’t be able to climb out of, can be caused by people taking advantage of your weaknesses to abuse you and your company. Due to the fact that many businesses are in a bind and want a money headway to pay their staff or maintain their operations, money sharks are allowed to operate. Traditional banks make it incredibly difficult and time-consuming for several small businesses to obtain a line of credit.
Money creditors who engage in predatory lending are called loan sharks. Think about the oceanic sharks that feed on their victims. With huge interest rates that can essentially cost you, they provide businesses with emergency loans. We’re here to help you distinguish what a loan shark is and ensure that you are aware of the risks posed by loan sharks.
What Exactly Are Loan Sharks?
Professionals known as loan sharks sell loans at exorbitant interest rates that occasionally approach 300 percent to 400 percent APR. They charge a variety of fees, most of them hidden expenses, like an underwriting fee, in spite of their high-interest rate. They also mislead the customer about the actual cost of the loan; for instance, they may give you a reduced rate only to have you discover that the deal was only good for a little period of time and the annual interest rate was enormous.
There will be further costs if you don’t pay back your loan on time, endangering the company’s long-term financial stability. Loan sharks take advantage of their clients by aggressively enforcing their fees or by pressuring you to take out another loan to pay the money back you owe. When it comes to missed or defaulted payments, they are exceptionally merciless, relentless, aggressive, and unrelenting.
These loans are intended to be paid back in a brief amount of time. In this approach, the company can carry on operating through a period of rapid expansion, a temporary liquidity crunch, a difficult time, or once they can secure a conventional loan. These loans assist businesses in the near term in avoiding numerous long-term plans that may destroy their operations.
How Do Loan Sharks Work?
A member of your personal or business network who offers to make loans at high rates of interest is known as a loan shark. They can be discovered online, through personal networks, or in underbanked neighborhoods. They typically operate for unregistered or personal firms and receive their funding from unknown sources.
Background checks and credit records are not necessary for loan sharks. They will make big loans with the hope of quickly earning exorbitant interest rates. Interest rates on loans through loan sharks are much higher than those set by law. A loan shark would, for instance, offer someone $10,000 with the requirement that $20,000 be paid back within 30 days. Additionally, these creditors frequently use violence to enforce repayment by demanding that the amount be paid back at any time.
Why You Should Avoid Loan Sharks
Loan sharks act illegally since they are not regulated. Loan sharks might not even feel obligated to adhere to any of the business norms established by the FCA, unlike authorized creditors, which puts everyone who loans from them in danger.
For instance, loan sharks frequently impose high rates of interest and may resort to intimidation and threats, especially if you are unable to make a payment. Although if you only loan a small amount at first, a loan shark may manage to snare you, leaving you with thousands of pounds in debt.
Some loan sharks could also be engaged in other types of crime. There have been instances where debtors were coerced into even graver and riskier circumstances, including drug peddling, in order to pay back their loans.
After taking out a loan from a loan shark, it’s very simple to get into a debt spiral, which could have long-term effects on your finances and other areas of your life, such as your mental wellbeing and relationships with family and friends.
How to Avoid Loan Sharks
You can check the Financial Services registration or the Loan Smart website to discover if a creditor is permitted to make loans. They cannot lawfully lend money if they are not on the list. If, after checking the registry, you are still not convinced whether a creditor is legitimate, you might want to get in touch with the FCA directly.
It can be worthwhile to get in touch with the company directly to establish that the person you’ve been speaking to genuinely works there if they’ve been representing an authorized firm.
Here are some warning indicators that someone might be a loan shark, in addition to making sure the creditor is approved by the FCA.
- You received a cash loan offer – Although loan sharks often trade in cash, you should be mindful that they could also be active online.
- Lack of documentation – You will receive the relevant documentation outlining the loan terms from all legitimate creditors. Loan sharks won’t provide you with a written contract.
- Unclear information regarding the loan – such as the conditions of repayment and the interest rate. When it comes to the interest rate and the precise date the loan would have been repaid, loan sharks could be evasive.
- Loans made without checks – Loan sharks won’t perform credit checks as well as affordability analyses, in contrast to authorized creditors.
- Using any of your valuables as security – As “security” for the loan, loan sharks may seize valuables or even documents like your passport and even bank card.
- Violent and threatening behavior – If you don’t pay the loan back, loan sharks may threaten you with violence, which is something that licensed creditors will never do.
- Your debt is never repaid – Once loan sharks have you borrow money from them once, they’ll probably charge you such enormous interest rates that you’ll never be able to pay it back in full. Additionally, they might continue to lend you money or impose new fees, keeping you indebted to them.
- If a new acquaintance offers to give you a loan – If you don’t know someone very well and they appear friendly and you believe you could trust them, you must always be wary if they give you a loan.
Some loan sharks could pose as a doorstep or payday creditors. These creditors must, however, be approved by the FCA, therefore you can check the FCA register to see if they are authorized creditors.
What to Do If You Owe Loan Shark Money?
The very first thing to remember is that you haven’t done anything wrong if you or someone you recognize believes they got a loan from a loan shark.
While borrowing money from an unauthorized creditor is prohibited, giving loans without the right authorization is not. Therefore, if you borrowed money from a loan shark, you shouldn’t feel guilty about it or concerned that you’ll get into problems with the law because you haven’t broken any laws.
Loan sharks may scare you and threaten to sue you if you don’t pay back the money. However, neither they nor you are required to pay them back by law. They have no legitimate right to do this. The law has been broken by the loan shark, not the person that took out the loan.
