Watch Out – There Are Loan Sharks About

With a poor credit rating and not much money coming in, some people may feel that they will never be able to afford to spend on the items they want. That's why it may seem to be a dream come true when someone turns up on their doorstep offering money with no credit checks and with no stipulations about their earnings. But although this may seem attractive at first it can soon turn into a nightmare. In fact, the person concerned may have become the victim of a loan shark.

What Is A Loan Shark?

A loan shark is someone who lends money at a high weekly interest rate. Loan sharks are also known as doorstep lenders because they turn up at people's homes, offering to lend them money. Loan sharks are unlicensed lenders. This means that unlike banks and credit card providers, there are no regulations to keep them in check. It is estimated that more than 7million people get into the hands of loan sharks.

How Do Loan Sharks Operate?

Loan sharks prey on people with no hope of getting credit elsewhere. They often offer on the spot loans that seem like a good solution to financial problems. However, they also add on a hefty sum as interest at the same time. This can increase the outstanding loan amount instantly to double or treble the original sum. There are no consumer credit agreements, and thus little protection for the borrower.

This is a very expensive way to borrow money. One case saw a loan of about £5,000 increase to a debt of more than £300,000. It can turn nasty if people are unable to meet their repayments. Loan sharks are not afraid to use intimidation and violence to collect the money owed to them. They may also attempt to take people's possessions and sell them to meet repayments.

Help For Loan Shark Victims

People who fall prey to loan sharks have only a limited number of options. Although consumers have more powers to challenge unfair loan practices, thanks to a recent shake-up in regulations, this does not help with loan sharking. Instead, consumers can report unfair practice to the Department of Trade and Industry (DTI) or The Office of Fair Trading (OFT).

Since lenders who give credit are supposed to be licensed, the DTI or OFT will be able to investigate. They may even be able to prosecute, if the borrower is willing to go to court.

There is also the charge of unfair lending. Unfair lending can be difficult to prove, as it is not about extortionate interest rates. Instead it is about how the person issuing the loan sold it and how the lender told the borrower about the terms. For example, if the loan shark deceives the borrower about the amount being borrowed, this is an illegal loan. Loan sharks can go to prison for up to two years and face a hefty fine if caught.

Instead of going to loan sharks, borrowers might be better off using a credit union. Credit unions have better interest rates. Credit unions usually operate within a particular area and offer many of the same facilities as banks.

More Information

• Dealing with loan sharks - Advice from Direct Gov site
• Tackling loan sharks and more - PDF information sheet on dealing with sharks
• Tackling Loan Sharks and more - Information from consumer group Citizen's Advice
• Trading Standards - Know of a loan shark? Tell trading standards about them!