What You Need to Know About Loan Sharking
Having bad credit and money trouble makes you a favorite target for loan sharking. These sharks are people or so-called businesses that lend money with illegally high interest rates. They are also unregulated and avoid documenting the money they lend. These so called under the table loans are unethical. Reconsider the next time you say “I need a loan shark.” If not, you may be getting yourself into more trouble than you bargained for.
Who the Lenders Are
You have heard about bad credit lenders and borrowers. The borrowers are people who need money to buy cars, homes or appliances; however, they cannot borrow loans because of their bad credit. The bad credit lenders are banks and financial institutions that try to help these individuals. The lenders work under government laws and regulations and help millions of people all over the country. It seems like they are doing a great service to the community by helping people with bad credit. But there is till a gap between lenders and some people who are unable to qualify for even these loans, This finance gap is the sweet spot for loan sharking.
Bad credit lenders charge high interest rates to borrow money from them, but those interest rates are regulated by government. Their borrowers have deadlines when they should make their payments. If the payments do not come in, the interest and fees can be levied.
All financial experts and advisors suggest holding off on taking out a bad credit loan unless you have tried all other options. They suggest other alternatives to predatory or usury (illegally high interest rates) loans.
Where to Find Them and How to Avoid Them
You will find loan sharking in nearly every community in America. These illegal lenders are in small town and big cities. They are not easy to find, but loan sharks are looking for you. There are alternative. Try payday lenders for short term loans.
Payday lending is meant to be issued faster and paid back in the short term. The typical repayment period lasts for 14 days or until the next payday. Many lenders state that the loans are not long-term solutions to financial problems. This is why many of payday lenders do not check your credit. Also, the amount that you can borrow is usually limited to $500 or $1,000.
Even though payday lending is widely legal in the US, that does not mean there aren’t pitfalls. In the U.K, the use of payday lenders has grown significantly since 2006, according to The Guardian. There are no legal restrictions on the fees, so lenders can charge as much as 1,000% annual percentage rate. As long as they state their fees, they charge whatever they want.
The popularity of payday loans in the U.K. or anywhere is a sign of the difficulty people experience managing personal finances.
Before you turn to loan sharking, talk to a responsible financial representative at a bank or credit union. Get a full list of the alternative options given to you, whether you have good or bad credit. Send in a report if you or someone you know has become victimized. Here are legal options for short term cash needs.
Car Title Lenders
Just as the name suggests, auto title lenders lend money using the title of your car as collateral for the loan. Thus, your car serves as a guarantee the lender will be made whole if you don’t pay the money back.
The laws that regulate this type of lending are not the same in all states. Like with all lenders, the terms and conditions vary widely. For the most part, though, you need a clear title and proof of ownership. Typically, the loan process is short term and the interest rates are high.
The lenders do not check your credit, so they are taking a huge risk with you and you are taking a huge risk with them. If you do not repay the loan on time, the loan goes through a “rollover” and you accumulate more debt.
Pawnbrokers
Pawnbrokers are legal money lenders who use various non auto or real estate properties as collateral in return for a loan. If you do not repay on time, they will resell your property as compensation. The profit comes from acquiring products below their real value and selling them at higher rates.
Many pawn shops operate in poor neighborhoods where the business is high. You will get your personal items returned if you repay the loan on time. These lenders are governed by state and local law. If you use a pawn shop and have a problem, these regulators may be helpful resolving the dispute.
Legal and Illegal Recovery Practices
Collection agents are similar to bounty hunters. They hunt down people who owe money on their loans. Generally, they use legal methods to contact people by phone, email or mail and inform them about debts. If the borrowers do not respond, the agents can take them to court and sue for a judgement.
If you look into loan sharking online, you will not see any mention of verbal or physical threats. Illegal loan sharks never admit to harassing their debtors, but know that it is a possibility. Unregulated loan sharks already do not follow the laws, so they are more likely to resort to violence.
In today’s world, you need to pay bills like everyone else. Like millions of people, you need to borrow a loan and pay it back later. You have considered using payday lenders, but in reality, you are actually looking for loan sharks online. Think twice before you say “I need a loan shark” because you may not. Learn more about both legal and illegal lenders and make a wise decision for your finances.