There are countless reasons why you might need a loan. In the hardened economy, many people are forced to take out loans just to buy food or other necessities. While there are other options available, some may decide loan sharks are the only answer. If you find yourself saying, “I need a loan shark,” here is what you should know before dealing with one.
Types of loan sharks
Loan sharks can be licensed or unlicensed. Unlicensed loan sharks are the type who provide the money and demand payment no matter what. These are the kinds most people think of when they hear the words “loan shark” – someone who will get the money and could hurt people in doing so. These types of loan sharks should be avoided at all costs.
Licensed loan sharks are legal in some states and will not physically harm you. However, the interest rates are extremely high. Licensed loan sharks can include payday advance businesses, which charge “service” fees to get around U.S. state laws prohibiting loan sharks. In the United Kingdom, licensed loan sharks are monitored by the Office of Fair Trading (OFT) and must adhere to regulations. You can check the Consumer Credit Public Register to see if a loan shark is licensed by the OFT.
The availability of licensed loan sharks has decreased the use of unlicensed loan sharks, however they still exist.
Dealing with loan sharks is faster than applying for loans through the government or financial organizations. Banks require a lot of application paperwork to be filled out, as well as credit checks and proof of identity. Receiving funds from government loans can take even longer. However, many loan sharks can give you the money you need instantly. Applications are still required, but they are much shorter than ones from a bank or federal agency.
Some loan sharks have a loan limit. However, these places rarely have a limit on the number of applications a borrower can fill out. Therefore, by filling out several applications, a borrower can get three or four times the usually amount allotted. Multiple loans are not recommended due to the increased interest rates, which can plummet a borrower into deeper debt.
Loan sharks generally don’t run credit checks on clients looking for a loan. It is likely assumed the client has poor credit since he or she is not taking out a loan from a financial institution or lending group. Because clients who use loan sharks are considered high risk (in that there is a high risk the person will default, which means the client will not pay back the money in the time agreed upon), interest rates are usually much higher than other lenders. If it takes too long for the client to pay back the original amount, or principal, they could end up owing more in interest than the amount borrowed. These types of loans are only beneficial if the client is expecting to pay back the loan in a very short period of time.
Many people are forced to use loan sharks because they do not have possessions worthy of collateral. Collateral is anything worth a percentage (or entirety) of a loan that is used for security to acquire the loan. For example, mortgage loans from banks usually require the borrower to put the property up for collateral. If the borrower defaults on the loan, the lending institution takes ownership of the property used for collateral.