We all find ourselves a little hard up for cash from time to time.
Maybe your business idea is finally coming together and you feel that you are ready to seek funding. Or maybe you have fallen a little behind on your expenses and need some breathing room.
Whether for business or personal reasons, taking on debt should always cause trepidation. Especially if you find yourself going to a loan shark for relief.
What is a Loan Shark?
Loan sharks are predatory lenders, often operating illegally, who are in the business of lending easy money at exorbitant interest rates.
They make their money because their rates are so high and accumulate so quickly that borrowers often have no choice but to take out another loan to partially pay back the initial one. Now they have a much higher principal with the same absurd rates.
Over time, borrowers end up paying far more than the original loan in interest alone, without ever putting a dent in the principal. To make sure borrowers keep paying, loan sharks often wage campaigns of harassment and intimidation.
Often they'll threaten legal action, even claiming that delinquent borrowers face jail time if they can't come up with a payment.
How to Spot a Loan Shark
If you have ever watched many movies, you probably have a specific idea of what loan sharks look like. Sometimes they're obvious criminals or other seedy, back-alley types. In any case, you can usually tell at a glance that they're not the kind of people you want to do business with.
Of course, if life were like the movies, the loan sharks would be out of business in short order. Instead, they masquerade as legitimate lenders. There are some common signs that can give them away, however.
Loan sharks will usually offer little in the way of paperwork, for one. For another, they'll usually be reluctant to actually tell borrowers what the interest rates are, lest they have second thoughts.
Taking valuable documents like passports, bank cards, or driver's licenses is also not unheard of. They'll normally refuse to let you settle your debt once you realize you're in too deep, and they will often tack on extra "incidental" fees and charges as they see fit.
Alternatives to Loan Sharks
Even when you feel like your back is against the wall, there are options open to you.
Depending on your credit history and how much you're looking to borrow, some banks will be flexible with potential borrowers. Credit unions, in particular, are great institutions to borrow from.
And if you're really hard up, getting a cash advance from a credit card is still preferable to a loan shark.
And if you're looking for a business loan, there are even more options open to you if you're willing to look.
Don't Swim with Sharks
Knowing what a loan shark is, you should also know to steer clear of them. Offering you easy money at unsustainable rates, their loans are never meant to be paid off, allowing them to rack up interest until you've been bled dry.
Struggling with any kind of debt is never easy, and loan sharks are not the only lenders known to sometimes employ unscrupulous practices. Credit card companies, for example, employ similar tactics by allowing cardholders to accumulate more debt than they can repay so that the company can comfortably profit off of the interest.
If that sounds like your situation, check out our top tactics for digging yourself out of credit card debt.
