Illegal Money Lenders: Loan Sharks
If you have bad credit and find yourself in need of a loan, it can be difficult to find a bank or mainstream lender that will approve your loan request.
There are loans available to people with bad credit, and low credit scores, and even no credit, but you need to know where to look, and what to look for.
At a time when you need a loan, it may be for an emergency such as a car repair, boiler repair, or any kind of financial emergency, being rejected for a loan, and then being approached by someone offering to help, places you in a vulnerable position.
If you feel you cannot get a loan anywhere else, you may be tempted to take the person up on their offer.
And today with the Internet and web sites, not all unscrupulous lenders stand on street corners looking shady; they can have web sites, and look legitimate.
The first thing you need to know and look for is if the lender is registered and authorised by the FCA/Financial Conduct Authority.
This is the regulatory body that regulates all things credit and lending. If a lender is not registered with the FCA, they are not legal to grant loans or extend credit in any manner.
Once in debt to a “loan shark” or illegal lender, due to the nature of the loan and the extremely high interest rates, it can be very difficult to break the cycle and get out of debt.
And loan sharking and illegal money lending is still going on and happening. Unfortunately as long as there are vulnerable people in need of loans, there will be those who exploit this.
Legal Loan Sharks
For a time, many people felt that payday loans were “legal loan sharks” due to the high interest rates they charged. Some charged 1500% to over 2000% APR/annual percentage rate.
The reason why these APR’s seem as staggeringly high as they do is that payday loans are a short-term loan meant to be repaid within 30 days or less. By expressing the interest rates as an APR, for a 12 month period, the rates seem higher.
Payday loans catered to someone who was working had a wage, and also a bank account.
However, some payday lenders were a bit aggressive in their collection practices, and also kept borrowers in perpetual debt due to rolling over the loans.
Once the FCA capped the interest rates and times a payday loan could be rolled over, many payday lenders went out of business, including the largest payday lender, Wonga.
Guarantor Loans as an Alternative
As an alternative to taking out a payday loan, and also avoiding loan sharks, one option is a guarantor loan.
Guarantor loans are loans that are granted and based on affordability, and the fact the borrower has a guarantor for the loan.
These loans are for larger amounts and also longer terms than a payday loan, which makes them easier to repay and the monthly payments more affordable. In addition, the interest rates are much lower.