What is a loan shark?

A loan shark is an individual or entity that offers loans at extremely high interest rates, often illegally and without proper authorization. Loan sharks typically target individuals who are unable to secure loans from legitimate financial institutions due to bad credit, lack of collateral, or other financial difficulties.

Characteristics of Loan Sharks

1. Exorbitant Interest Rates
   Loan sharks charge interest rates that are significantly higher than legal limits. These rates are often so high that borrowers struggle to repay the loan, leading to a cycle of debt.

2. Lack of Regulation
   Unlike banks or licensed money lenders, loan sharks operate outside legal frameworks. They do not follow official lending rules or consumer protection laws.

3. Aggressive Collection Tactics
   Loan sharks often use threats, intimidation, or even violence to collect repayments from borrowers. This can include harassment, physical harm, or damage to property.

4. No Formal Paperwork
   Loan sharks rarely provide written agreements or legal contracts. The terms of the loan, including interest rates and repayment schedules, are often unclear and subject to change at the lender’s discretion.

5. Short Repayment Periods
   Borrowers are usually required to repay the loan within an unreasonably short time, making it difficult to meet the terms without borrowing more money.

6. Targeting Vulnerable Individuals
   Loan sharks often prey on people in desperate financial situations, such as those with low income, high debt, gambling problems, or no access to traditional banking services.

How Loan Sharks Trap Borrowers

• Borrowers take out a small loan but quickly fall behind on payments due to high interest.
• The outstanding debt grows rapidly, as loan sharks impose additional fees or penalties.
• When borrowers struggle to pay, they may be pressured into borrowing more, deepening their financial troubles.
• In extreme cases, loan sharks use coercion, violence, or blackmail to enforce repayment.

Legal Consequences

• In many countries, loan sharking is illegal, and those caught engaging in it can face heavy fines and imprisonment.
• Borrowers are encouraged to report illegal lenders to authorities, though fear often prevents them from doing so.

How to Avoid Loan Sharks

• Only borrow from licensed financial institutions.
• Read loan agreements carefully before signing.
• Seek financial counseling if struggling with debt.
• Report any suspicious lenders to the authorities.