Is 2023 the Year of the Loan Shark?

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Loan sharks have long been an unsavory part of the credit lending landscape. Still, they may be on the rise as unethical and unregulated lenders take advantage of inflation, economic uncertainty, and reduced product offerings from conventional banks.

Increasing living costs linked to food, utilities and fuel mean that countless households are feeling the pressure, where wages have risen at a slower pace, creating a gap between affordability and income.

Almost 10% of people used loan sharks to cover festive spending last year, and this startling statistic could rise further without education to warn borrowers about the severe risks.

How Common Are Loan Sharks?

Loan sharking is far more common than we might imagine. A report from Spring 2022 found that in the UK:

  • 1.08 million people were in debt to illegal lenders.
  • 62% of borrowers in 2021 earned under £20,000 a year.
  • 66% were already in debt to a formal lender, such as a bank or credit card provider.

These figures are worrying because the scale of the challenge is almost 300% higher than previously estimated.

The primary users are low-income families and those who cannot borrow more from regulated lenders, potentially because they are already in financial distress and borrow from loan sharks to cover the interest accruing on pre-existing borrowing.

Why Do People Turn to Loan Sharks?

An Informal Lending Report published by Wonga explains that part of the problem is based on culture or lack of access to formal lenders. Where individuals have poor credit, no digital credit history, or no available banks or online access, their chances of securing a safe loan with in-built protection are extremely low.

Borrowers also rely on loan sharks – they aren’t arranging significant loans for larger purchases but depend on neighbourhood lenders to provide small amounts of cash to pay for food, electricity, transport, fuel, and mobile phone data.

Particularly in areas with low financial literacy and where loan sharks have been active for many years, they have become a normal part of reality, even perceived as beneficial to help people manage the costs of everyday life.

Many will be unaware of the risks, the potential for aggression, or that the interest rates they are paying are exorbitantly high and exceed any caps placed on credit lenders by industry regulators.

What Is the Risk of Borrowing From a Loan Shark?

Loan sharks charge multiple times the interest rates applied by any legitimate lender and deploy threatening behaviour to demand repayments, often escalating over time if a borrower is unable to pay on time.

In many cases, the borrower never repays the full debt since the interest rates mean the amount owed, or perceived to be owed, climbs ever higher in a relentless, unending spiral.

Regulated lenders adhere to strict rules, such as capping the interest they charge, limiting the number of times you can ‘roll over’ a loan, and ensuring you have all the information and advice you need to make informed credit choices.

If you wish to report suspected loan sharking or need advice about removing yourself from this situation, please contact the National Credit Regulator (NCR) and your local police force to protect yourself from further intimidation.

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