What are loan sharks?
Most people have already heard of them, but loan sharks (sometimes loansharks or loan-sharks) are illegal moneylenders who are known for charging high-interest rates as well as both threats, and the fulfillment of those threats, when collecting on the unpaid loans.
Why are there loan sharks?
Loan sharks are considered preditors on the money loaning business, and though they loan money in a similar way to banks, they also differ in several critical ways. They generally target the poor and desperate who do not have access to the more common money borrowing options available.
Are loan sharks illegal? Why are loan sharks illegal?
Loan sharking is considered illegal, the financial services business is highly regulated, and loan sharks perform their business outside of this regulation. Most importantly, the interest rates that loan sharks charge is extraordinarily high and considered usurious(above the legal limit). The interest rate depends on the loan, who it is from, and who it is for, but 20% to 50% or more a week is not unheard of in the loan sharking business.
Secondly, as stated before, the banking industry is highly regulated, and loans would usually require paperwork to be filled out and filed. Loan sharks and their borrowers prefer not to have any paper trail, and therefore, the need for credit checks and any other paperwork is not necessary.
Why would someone use a loan shark?
Although loan sharks charge high-interest rates, some borrowers still choose to obtain their loan services. There are a few reasons why someone would choose this service over a more traditional form of credit.
The first reason that someone would choose to deal with a loan shark is that there is no paperwork needed to be filed nor credit check performed. If someone has a low or no credit score, then it is nearly impossible to obtain a loan without a substantial amount of collateral. Additionally, some borrowers do not want to have a paper trail of their borrowing, which may hurt their already lousy credit. There is no bank account, address, identification, or documentation needed when dealing with a loan shark. Loan sharks will rarely ask any questions about why the loan is needed. This[AS1] information it is not of their concern; the only concern is if they will get their money and their “vig,” short for vigorish, meaning interest when they are supposed to receive it.
The other benefit when dealing with a loan shark is that the loan is instant. There is no need for approval that a financial institution would require. A borrower only needs to have enough of a relationship or experience with a loan shark to be provided with the loan. The better the relationship between the lender and borrower, potentially, the lower the interest rate that might be charged; this is, of course, at the discretion of the loan shark.
Who would use a loan shark?
Most borrowers would be obtaining loan shark loans, for one of several reasons, vices like gambling and drugs are often the reason for borrowing. However, just paying for necessities like food and rent could be the reason as well. Sadly some loans are made to pay back other loan sharks, resulting in a negative loan spiral. At an interest rate of 50% a week, a loan of $500 made with a loan shark can quickly turn into tens of thousands if not repaid quickly.
How do loan sharks collect money?
The majority of loan sharks can conduct business effectively through just their reputation. If a borrower pays back a loan on the schedule that was agreed upon, then the loan shark will be happy, and the transaction should go smoothly. Unfortunately, most loan sharks’ reputations are of intimidation and other nefarious tactics, including violence if the loan is not paid as agreed.
The classic example is, “if you don’t pay me on time, I will break your legs.” Threats of violence is probably an extreme example, but threatening to take one’s property through force, making sure that the borrower gets their paycheck cashed while in the presence of the loan shark, and obtaining a title to an item such as an automobile through intimidation has been used for collection.
In the worst cases, repayment maybe through violence, sexual favors, and the requirement for the borrower to commit crimes for the loan shark. These kinds of crimes include insurance fraud, battery or worse on another borrower, and drug dealing or transportation have also been used in place of cash repayment.
A final word of warning.
Borrowers seeking money from loan sharks should be very concerned with their dealings. The transaction may seem pleasant in the beginning. However, things can quickly take a downturn if a payment is missed, especially with the interest rates that a loan sharks charge. The loan sharking business is illegal, and the consequences are usually to dire, and far greater than the benefits of ease and lack of paperwork needed to take out a loan. It is highly advised to pursue almost any other means to obtain a temporary loan other than a loan shark.