Loan sharks are best avoided. Yet people often fall prey to them and end up paying steep upfront fees along with high interest rates even when they opt for extremely short-term loans. If you’re in financial distress, have a poor credit score or can’t get loans via traditional routes, approaching loan sharks may seem like the solitary option. But even when you need cash desperately and fast, getting swayed by loan sharks’ promises of cheap loans with instant approval or no credit check are pitfalls that you should stay away from. Let’s understand some of the reasons why it’s a prudent decision to stay miles away from loan sharks!
Most loan sharks are likely to operate illegally
Usually, loan sharks are not authorized lenders and operate illegally. This means they are likely to have little to no paperwork. Therefore, you can forget having a credit agreement or a proper record of payments. Even when loan sharks do have paperwork, it will most likely be extremely irregular with respect to the otherwise applicable rules and regulations. For instance, instead of complying with the standard regulatory rules, loan sharks tend to deliberately include misleading or confusing terms in the agreement. Additionally, they will refuse to give you adequate information about the total amount of money you owe them or the interest rate they will be charging. This leaves room for them to increase the debt or the interest rates to any amount they want to, at any time, without giving you any warning.
They are risky to deal with
Loan sharks could add additional charges on top of the interest payable, which could make your financial plans, go haywire. They may even increase your debt at the slightest pretext. Some loan sharks could ask for documents or material possessions like passports, driving licenses, bank cards, cars, etc. to be deposited as security. Once you hand these over, getting them back could be an uphill task unless you agree to their unreasonable terms and conditions.
If you fall behind with your repayments, loan sharks could resort to harassment, threats, intimidation, or violence. They may even pressurize you into borrowing more from them to repay one debt only to get stuck with another. Even if you manage to arrange money to repay all your outstanding debt at some point of time, loan sharks are unlikely to allow you to settle your debt. So apart from the risks involved, dealing with loan sharks would mean being trapped into the never-ending shackles of debt.
They charge a very steep rate of interest
Due to their hidden clauses, misleading terms and veiled fees, among others, loan sharks may make you pay interest rates that are up to 1.5% a day or more. In spite of that, most people agree to borrow money from loan sharks primarily because they cleverly conceal the interest rates that you will actually be paying. If there are some additional charges on top of such alarming interest rates, your financial burden would increase further. For instance, loan sharks could charge steep penalty fees when you fail to pay the high APR (annual percentage rate) or fall behind on your repayments. These could make dealing with your other financial obligations a tough task.
Disputes are difficult to settle
From the word go, you’re at a disadvantage when dealing with loan sharks. Most loan sharks rarely advertise their services. Rather, they do business depending on word-of-the-mouth publicity and recommendations. Some loan sharks could even solely operate online. Thus, if loan sharks are reluctant to settle your debt or some other disputes occur, it becomes almost impossible to pin them down.
Resorting to unethical and dangerous practices is another aspect loan sharks usually use to recover a perceived debt. Even in such cases, you don’t have too many options to settle the dispute, except going to the police or the relevant authority (like the local Trading Standards office if you’re in the United Kingdom). There’re several cases of unsettled disputes that trigger threats, blackmails, physical violence, and confiscation of personal and other items as security against loans given by loan sharks.
Ways to avoid loan sharks: Is your loan application rejected by the bank or financial services provider? Do you have a poor credit score that makes you ineligible for a bank loan? Do you need funds desperately to meet some medical or financial emergencies? Whatever be the situation, don’t press the panic button. Calm your mind and think carefully about the possible options to get the required amount. Rather than approaching loan sharks, you can try asking friends and family or even check if you can get loans from the credit union.
There’s a wrong notion among people that those with poor credit ratings won’t be able to get finance from legitimate sources. Even when you have a poor credit score, you can find several organizations and licensed lenders as well as financial services providers that would offer you loans. By investing time for your online search, you can also find credit cards that are intended to help you rebuild your credit score.
If you’re struggling with low income, you could check if you’re eligible to claim government benefits. Such benefits can come as a respite and help you meet your financial needs without falling prey to loan sharks.
Proper financial planning is also an important step to avoid loan sharks. You can start with the simple step of setting up a monthly budget. Decide the amount of money you’ll need to meet essential expenses like food, gas, utilities, rent and so on. Identify the unnecessary expenses as well and try to curtail them where possible. Make saving a priority. Also, sticking to your monthly budget for a couple of years will help you to slowly build a nice nest egg.
The key is to plan your finances well and align your activities to achieve financial freedom. When you do it with complete and unwavering focus, you’ll have enough to meet your economic emergencies. Therefore, you won’t need to approach predatory loan sharks and ask them to lend you money. So borrow safely, if you must, to enjoy peace of mind and continue living stress-free!