As you get up and check your inbox, you find it is flooded with several emails from loan companies offering help to get you out of debt – that is a serendipitous encounter. Unfortunately, these generous offers are not what they seem. In disguise for help, they may be a loan with outrageously higher interest rates sold under unethical and illegal lending practices. So when such offers come your way, the arm bells should ring.
These offers can be from unethical lending companies, also known as loan sharks. They can be individuals or a group of people acting like an organization loaning you money without an affordability check. As per the FCA guidelines, no lender can sell a loan without running an affordability check. If they do so, this is illegal and against the law.
Undoubtedly, borrowing money from loan sharks is very dangerous, but the difficulty you face spotting them makes you get trapped in such lenders. For instance, some agents could be employed by a legitimate loan company, but then they start lending money separately. They may take advantage of the reputation of the previous lender to run their illegal lending practices. You might think the agent still works for the same company and keeps borrowing money.
A lender must be registered with the FCA. There are specific lending rules and regulations you must abide by. Loan sharks are not regulated, so they are not obliged to meet industry standards. If you borrow from such lenders, you are at risk.
Financial experts often issue an advisory against borrowing from loan sharks. You will be charged high-interest rates if you borrow money from such loan companies. These interest rates could be so high that you cannot pay off the debt. They may even use threats and violence in case of a default.
You will pay thousands of pounds even if you borrow a small sum. The debt trap will hurt your credit rating. You will find getting a loan at a competitive interest rate even more challenging down the track. Once your credit score is damaged, it will take a long time to heal. This will also affect your mental health. If you are struggling with debt, you should consult debt advisors or debt management companies rather than using scam offers.
Based on the rate of interest charged, you cannot decide whether or not a lender is a loan shark. Various lenders are not registered with the FCA, but they keep borrowers’ interest in the first place. Likewise, some lenders registered with the FCA charge high-interest rates.
There could be many factors why lenders charge higher interest rates. Your credit score could be wrong, your income might not be sufficient, and the lender’s policy makes it slightly expensive. The provident company was a registered doorstep lender, but the APR was above 1500%. This was way too high. The company is closed now, but some people still want similar loans.
A few lenders are out there that provide loans similar to Provident, but the higher interest rates are the major concern. You will find these loans quite affordable as you can pay them down weekly. If the amount is slightly larger, monthly payments will be made. The benefit of using these lenders for doorstep or small loans is that you can easily manage payments, borrow a larger sum and improve your credit score if you pay off the dues on time.
The easiest way to spot a loan shark is to check the FCA website to find out if the lender you are looking to apply to is registered, but having said that, registered lenders can also charge high interest rates. You should consider the following tips to spot a loan shark:
You have been offered a cash loan. This is a traditional concept. Nowadays, you must have a functional bank account even if you apply for a doorstep loan.
They offer loans without a credit check, not asking for your bank statement and income records.
When you visit their website, you do not get precise information about interest rates, APR, early repayment charges, default fees, etc.
Some loan sharks may let you deposit collateral such as emergency cushions or savings. You should never secure small loans as you are highly likely to lose them, and despite that, you will be tied to a debt trap after defaulting.
An ethical lender never reaches out to people to promote their financial products and ask them to apply for a loan. If you receive such offers, simply mark them as spam and block them.
The deals offered by loan sharks will be too good to be true.
The address they have given on their websites is false.
You do not need to worry if you borrowed money from a loan shark. Lending money using unethical practices is illegal, but borrowing money from a loan shark is not illegal. It is not you who has broken the law but a lender.
They cannot take you to court even if they threaten you, so unauthorised deals cannot be enforced. You do not have a legal obligation to make payments. Report the complaint to the FCA.
Loan sharks can trap you in an endless circle of debt. To avoid them, you should know the signs of loan scammers. Do not borrow money if you have suspicions about their credibility.
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Jennifer Powell embraced finance writing just the moment she started working as a finance executive with EasyCheapLoan, which is a direct lender in the industry. Jennifer has an exceptionally keen eye for details and used her skills to pen down numerous blogs and articles on finance. When asked, she simply replies with a look on her face that shows how genuinely she cares for people struggling with financial problems. Jennifer works dedicatedly as a finance professional and considers sharing both her experiences and knowledge to increase the financial literacy of people and businesses.
