If you dream of going on a summer holiday, owning a house or even starting your own business, it might be crucial and expensive to achieve all your long and short-term goals without building and managing your credit.
The normal tendency will be to slot the less-expensive expenditures such as holidaying on your credit card and seek longer term funding for the more expensive goals. Bank loans will always be a much needed instrument to access credit for your list of goals and objectives.
Nevertheless, there’s never a guarantee that applying for a bank loan will grant you access to credit. In many cases, banks reject applicants when they fail to pass the required criteria such as a solid and above average credit history. As a matter of fact, the recession in the past years hit individuals so hard that even seeking a commercial mortgage posed a major problem.
Bank loan applications sometimes require a lot of paperwork and third party intervention which makes the process lengthy. Because of this, many people find immediate help from a loan shark. Who are they anyway?
What/Who is a loan shark?
“I came across this person who lends money without getting any information from you”. This is a typical quote when you informally ask someone on the street for ways to seek finance. This person who “loans” money could be a family friend or friend of a friend. They might look professional by operating in a neighbourhood corner store.
According to the Government’s Illegal Money Lending Team, borrowing from loan sharks is increasingly becoming accepted as a source of finance. Many individuals are taking advantage of the massive gains they make from customers in need of money. The loan sharks basically ease the process of borrowing money for short periods and charge elevated sky-high interests which makes the loan repayment difficult and complicates the original problem
Drawbacks of using loan sharks
Borrowing money from a loan shark is somewhat disadvantageous with a majority of them claiming to be legal dealers.
The payments are expensive and complicated — When borrowing from banks, an annual base rate is stated for every form of lending whereas a loan shark charges you weekly (or monthly) interest rates. You would normally expect a much higher interest rate but ideally, loan sharks could raise interest rates up to 25 times more in comparison to other forms of borrowing.
Loans are on lender terms- Most often, the repayments are not tailored to what you can afford but are specifically designed for the lender to enjoy high levels of interest. You might unexpectedly find yourself losing more money than you anticipated.
High interest rate charges – The sky-high interest rates charged by the loan shark makes this form of finance very extravagant. The lender often charges you on a weekly basis as opposed to the conventional annual interest rates charged by banks. Remember that the amount demanded for repayment isn’t the only danger.
They don’t report to credit authorities – Loan sharks most often do not report their transactions to credit agencies because most of them are not legal lenders. If you are one of those who seek credit to try and improve your credit score or obtain some credit history, then this is definitely not the right solution for you. Licensed lenders are expected to keep track of loan records with credit authorities because if they don’t, there’s no authentic proof of your exaggerated loan payments.
No regulations in place to operate within – Money lenders in the UK have to be licensed by the Office of Fair Trading. Since most loan sharks are not authorised, they are obliged to operate behind the law. If there is any disruption with the facility or if you have to report a complaint, you might find yourself with nowhere to turn as loan sharks do not tend to abide by any regulations leaving you unprotected.
“I can’t pay my loan shark…”It’s not the end of the world
As a victim unable to meet a repayment charge, you risk being harassed and threatened as most loan sharks employ debt collectors. In a worst case scenario, you may be put under pressure causing you to borrow more from the loan shark to pay some of their debt. All these repercussions could be avoided if you speak to expert advisers who could provide confidential advice on the debt recovery options available.
Consumers should make a critical analysis of the pros and cons before borrowing from a loan shark when trying to manage existing debt. The lesson is not to ever borrow from a lender without a current license by the Office of Fair Trading. If you need emergency funding, you could also contact a commercial finance broker who could talk you through suitable solutions to recover your debt.