People in financial difficulty sometimes turn to illegal money lenders when things get really tough. These lenders, commonly known as loan sharks, charge extremely high rates of interest and are to be avoided at all costs. Read on to find out why.
Why do people use loan sharks?
Not only will loan sharks demand very steep interest payments that you’ll struggle to manage, they are likely to use violence and intimidation if you cannot afford to pay them back. Unfortunately, with unemployment high and household budgets increasingly squeezed in the current economic climate, there are a large number of potential customers for these unscrupulous and unpredictable lenders.
Illegal money lending of this kind is most common in deprived communities, where there are a large number of low-income households struggling to make ends meet. Loan sharks may also look to exploit vulnerable individuals at certain times of the year, such as in the run-up to Christmas when money for presents is scarce and people feel under pressure to spend extravagantly on gifts and celebrations.
According to a 2010 report from the Department for Business, Innovation and Skills, the illegal money lending market is used by roughly 310,000 individuals. In 2009, these people borrowed an estimated £210 million collectively from loan sharks, but paid back £450 million. The report stated that the cost of a loan from an illegal lender averages £280 per £100 borrowed – about three and a half times the highest cost of legal credit in the UK.
Loan sharks and the law
Although the term loan shark usually conjures up images of a local gangster lending money to desperate people in his neighbourhood, in reality it can apply to any person or organisation that makes money on loans that are not licensed by the Office of Fair Trading (OFT). In many cases, illegal money lending is linked to wider criminality such as drug dealing and firearms, so people who take out illegal loans inadvertently help fund such activities in their communities.
However, that doesn’t mean you’ve broken the law if you take out a loan with one of these people – they have. If you’re unsure about anything, you can check whether a lender is properly licensed by checking the Consumer Credit Register on the OFT website.
Illegal loans and debt problems
The eye-watering interest rates represent the main reason for steering clear of loan sharks, as well as the possibility of threats, sustained harassment and violence. Many loan sharks resort to such measures because their loans have no legal basis and so cannot be enforced by ordinary means if the borrower struggles to make repayments.
Some illegal lenders may also attempt to seize your valuables in the event of non-payment, so if you do have serious financial problems it’s always advisable to seek alternative sources of help. Borrowing from a loan shark can quickly turn a bad debt problem into something even worse, as huge charges are likely to pile up as soon as the customer defaults on one or two payments.
You can report a loan shark in confidence to the Illegal Money Lending Team in England or Scotland, or to the Illegal Money Lending Unit in Wales. These services operate 24-hour helplines for people who come into contact with unauthorised lenders.
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