A loan shark is a person who lends money illegally at high interest rates or who threatens violence to collect loan payments. Loan sharks are predators who forcibly extend loans to enrich themselves by violating state or federal laws.
Loan sharks typically charge annual percentage rates of interest in excess of 36% APR and may have a reputation for punishing victims who fail to comply with their extortion tactics. Below we describe how loan sharking works and explain the definition of loan sharking.
Loan shark definition
What are loan sharks and how do you describe them? The definition of loan shark generally includes anyone who forcibly extends or conspires to extend loans.
Some states in the US have criminal laws that specifically define loan sharks as people who lend money illegally at high interest rates or who threaten violence to collect loan payments.
Are predatory lenders and loan sharks the same thing?
Loan sharks are predatory lenders, but predatory lenders are not necessarily loan sharks. What is a loan shark? Some states in the US have criminal laws that specifically define loan sharks as people who lend money illegally at high interest rates or who threaten violence to collect loan payments.
Predatory lenders may be legitimate financial institutions that take advantage of unsuspecting borrowers by hiding the true nature of their loan products. These lenders may push consumers to purchase additional services when opening a credit account.
Predatory lenders do not necessarily use extortion and other loan sharking tactics, but they may adopt aggressive sales tactics or deception to manipulate consumers. Lending depends on compulsion, while predatory lending depends on unacceptable salesmanship.
Loan sharks may have zero tolerance for delinquent borrowers, while predatory lenders may ignore a borrower’s ability to pay if the borrower offers collateral or a mortgage. Avoiding loan sharks and predatory lenders can help you avoid personal loan scams.
Read Also: What is an Unsubsidized Loan?
How does Loan Shark work?
A loan shark works by providing financing to people who need quick cash or capital. The lender may offer financing at illegally high interest rates and use threats of violence to force borrowers to accept and comply with illegal terms and conditions.
Loan sharks may target consumers who do not have access to legitimate lenders. These illegal lenders may develop a reputation for violence which helps them enforce forced extensions of credit. Lending companies may start out friendly while disbursing funds and then turn cruel if the borrowers fail to meet their repayment demands.
Loan Shark Example
Here are some examples of loan sharks:
- A personal lender who threatens violence to collect a debt
- A predatory lender who charges exorbitant interest rates
- An organized crime boss who forcibly extends loans or financing
Is it bad to work with loan sharks?
Working with a lender is generally a bad idea. Loan sharks are illegal lenders who rely on illegal tactics for financial gain. Loan sharking is generally illegal under federal and state laws against extortion and criminal usury. Under usury laws, lenders are prohibited from charging excessive interest rates.
Loan sharks are often known to be violent and may threaten or harm borrowers who fail to repay their loans. Even if you are willing and able to satisfy the lender’s ruthless demands, the interest you pay will be supporting an illegal practice. The lenders are not legitimate lenders.
Can Loan Sharks Threaten You?
It is illegal for creditors to threaten you with violence. However, loan sharks do not necessarily play by the rules. Loan sharks are illegitimate lenders who forcibly extend loans or provide financing.
Borrowing money from a lender is generally a bad idea, especially because the lender may threaten you if you do not comply with the lender’s extortionate demands.
Tips to Spot a Loan Shark
Below we highlight several tips to recognize the lender:
Check the Lender’s License
A legitimate lender in the United States generally requires a charter or license issued by a state or federal regulatory agency. Checking whether the lender has a valid lending license can help you locate the lender. This is because lenders can finance forced extensions of credit without proper licensing.
Check Financial Disclosures
Lenders of consumer loans are generally required to disclose the terms and conditions of their consumer loan products. Checking if a lender discloses your APR can help you locate a lender. This is because lenders may offer forced loan extensions without disclosing their illegal terms.
Check Lender Underwriting Standards
Legitimate lenders generally have basic underwriting standards that do not guarantee personal loan approval. A borrower typically requires proof of identity and proof of income to qualify for a consumer loan.
Checking whether the lender has basic underwriting standards can help you locate a lender. This is because lenders can provide financing without verifying the borrower’s identity or income.