When life throws unexpected expenses your way, it can be tempting to consider quick fixes like a loan from an unregulated source. However, turning to loan sharks can have devastating consequences.
To help you understand the dangers of illegal lending and how to stay safe, we’ve summarised the key insights from our recent episode of the Smile and Save Podcast with Cath Wohlers from Stop Loan Sharks.
What is a loan shark?
Loan sharks are individuals or groups who prey on vulnerable people in financial difficulty. They operate outside the law, offering loans without proper authorisation. Unlike legitimate lenders listed on the FCA Register, loan sharks don’t perform checks to ensure borrowers can repay what they owe. Instead, they use these loans as a trap to demand spiralling repayments.
Loan sharks typically charge extremely high interest rates, making it nearly impossible for borrowers to repay the full amount. They may also resort to intimidation, threats, or violence to enforce payments, creating a cycle of fear and dependency for their victims.
What are the main dangers?
Financial Harm
A regulated lender ensures affordability by conducting thorough checks, giving you clarity about repayments and protecting your financial resilience. Loan sharks do the opposite. They’ll lend to anyone, regardless of their ability to pay, while charging extortionate interest rates.
For example, Cath shared a shocking case where someone borrowed small amounts totalling £3,000. Over time, they repaid £25,000 and were told they still owed £16,000. This level of exploitation is common with rates sometimes climbing to a staggering 130,000% APR.
Social and Emotional Damage
Loan sharks don’t just harm your finances. Once they’ve reeled you in, they often resort to harassment and intimidation to collect repayments. Victims face relentless stress from:
- Threats of violence
- Hundreds of aggressive texts or calls per day
- Visits to their homes at unsociable hours
- Humiliation tactics like spreading lies via social media
The emotional toll on victims is severe, and it’s heartbreaking to hear that, on average, it takes about three years for someone to report a loan shark. That’s three years of financial and emotional turmoil that can be incredibly challenging to recover from.
How to spot a loan shark
There are a few common red flags to look for:
- No Paperwork: A legitimate lender will provide clear repayment terms, interest rates, and details about early or late repayments. Loan sharks often operate with cash-in-hand loans and no documentation.
- Unclear Repayments: With loan sharks, you’ll often never know exactly what you owe. They keep increasing repayments, making it impossible to get out of debt.
- Aggressive Behaviour: Threats, coercion, and requests for personal information to use as leverage are all alarming signs.
If anything feels off, trust your instincts and seek guidance.
Help and support is available
If you or someone you know has been affected by a loan shark, support is just a call or click away. Stop Loan Sharks is a fantastic resource offering confidential help. Reach out via the live chat on their website or call their 24/7 hotline at 0300 555 2222 to speak to a professional who can help.
Learn more about loan sharks
Understanding the truth about loan sharks is key to protecting yourself and others. Watch the full podcast episode with Cath from Stop Loan Sharks above to discover more about the misconceptions around illegal lending and the steps you can take to stay safe. It’s an invaluable resource for individuals and employers alike.
- The information provided is for guidance and educational purposes only. Serve and Protect CU does not offer regulated financial advice. Please seek independent financial advice.
