LIFESTYLE & COMMUNITY

Loan Sharks: Everything You Need To Know Including Ways To Avoid Them

Date October 23, 2018 15:49

Do you know what is worse than taking out a payday loan? Borrowing money from a loan shark! Nowadays, it is becoming a really tough challenge to distinguish the shark from the good lender. Typically, loan sharking is an illegal practice not only due to unrealistically high interest rates, but also due to illegal debt collecting practice. To get their money back, loan sharks will take any possible measures, from threats of criminal prosecution on the phone to physical violence. In this article, we will talk about some specific ways to avoid this kind of lenders and keep your wallet and health safe.

Loan Sharks: Everything You Need To Know Including Ways To Avoid ThemCrystal Eye Studio / Shutterstock.com

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How to identify a loan shark?

As we all know, a shark is a predator that swims peacefully and patiently in the dark blue ocean until it smells the blood of some vulnerable victims. No wonder why these lenders were called after such a monstrous animal. Loan sharks typically act the same way. The first contact with them usually comes out of the blue. You may receive an email or a letter, or just a random stranger will promote their services.

At first, they will be friendly and seem honest, but remember, it’s their business – they got used to acting all the time. And the bait tastes really good. We will be told or informed about all the advantages of borrowing money from them, including no paperwork, no credit check, instant cash, and a false sense of support. Now let’s take a closer look at the specific factors that may give away a loan shark.

1. Outrageous interest rates

Remember, loan sharks seek people who desperately need money and cannot use the usual options. That’s why the interest rates are extremely high in these loans. You take $100 from them and by the end of the second week, you might already own $200! Another specific trait of this kind of loans is that the lender typically doesn’t reveal the exact interest rate or how much money you owe until it’s time to pay.  If you wonder how much do loan sharks charge, the annual percentage rate may go up to 2,000%! In other words, for a short-term (typically one or two weeks) loan, charges may run up to 20% of principal amount.

Loan Sharks: Everything You Need To Know Including Ways To Avoid ThemDoubletree Studio / Shutterstock.com

2. Flexible terms and conditions

There is a certain reason why reputable lenders require your valid ID and bank account information. They need to make sure you are a real person and able to repay the debt. So when your lender tells you there’s no need in any verification documents, be sure you have met the loan shark and now can examine their bloody teeth or run from them right away.

3. Securing the loan

Another characteristic sign of loan sharks is that they may ask you give away your passport, ID or even credit card to “secure” the loan. Loan sharks do not have any kind of license and lend you money only to get profits. They are not there to help you out in a difficult time, so please, do not give them your personal documents or property and assets even if it may sound reasonable in some way.

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4. Questionable or absent contract

Most of the loan sharks will give you money without any receipts not to mention a signed contract. However, some lenders will try to fool you by drafting a fake contract with some unclear information about them and their service, or some provisions that are highly unfair to you, such as the sky-high late payment fees, for instance. Take your time and read the terms and conditions carefully and thoroughly to keep yourself safe from potentially horrible consequences.

5. Unclear, foggy terms and conditions

The last but not least thing that should be mentioned is that the process happens so fast that you don’t even have time to receive full information regarding the loan. And it is in the loan shark’s best interests to leave you in the dark. The main principle of how loan sharks work is that they take advantage of your ignorance. On the other hand, licensed lenders will explain to you the terms and conditions on the language you understand to make sure you will pay when the day comes without any issues.

Loan Sharks: Everything You Need To Know Including Ways To Avoid ThemRawpixel.com / Shutterstock.com

What are the alternatives to loan sharks?

Anyone can become a victim of loan sharks. The strange thing is that most of them borrow money for everyday expenses and step right into the trap. Believe us, you don’t want to borrow money from a loan shark. In case you desperately need money and have bad credit there are some much better alternatives for you to try: short-term, instant cash, and no credit check loans, but with clear and reasonable terms.

There’s, unfortunately, a price for not checking your credit score and it is the high interest rate. There are many credit companies that can lend you money even if you have a FICO score lower than 630. Instead of a standard credit check, these companies analyze your history of employment, utilizing bank account, and some alternative databases to define if you are creditworthy or not.

Don’t forget to ask your friends and family members for help. They might be willing to lend you some money, or even cosign for a personal loan in a bank or credit union if they have a good credit score. Speaking of the latter, credit unions are smaller than regular banks and are typically more focused on the community. They might discuss with you the possibilities of taking out a loan face to face. In many cases, they do help people with bad credit.

Overall, we can highlight the following alternatives to loan sharks:

  1. Home equity line of credit (using your home as collateral to get a loan).
  2. Bad credit loans (payday loans, car title loans, etc.).
  3. Credit union loans.
  4. Peer-to-peer loans (licensed websites that connect borrowers with lenders all over the country).
  5. Cosigned loans with your friend or family member.
  6. Secured loan (offering some valuable item of yours as collateral, for instance, a car or a piece of jewelry).
  7. Loan from your family member or friend.

Loan Sharks: Everything You Need To Know Including Ways To Avoid Themg0d4ather / Shutterstock.com

Every one of the loans above has its advantages and disadvantages, yet each of them is oh-so-much better than taking money from a loan shark. Any financial consultant would recommend you to have a credit score improvement as your main strategy. And by borrowing money from the sharks you risk not only failing this goal, but also being stuck in the debt circle and total poverty. Loan sharks can have an absolutely devastating effect on your finances, so we hope this article will help you prevent this.

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