What's a loan shark?

A startling piece of research published by the Centre for Social Justice (CSJ) found that as many as 1.08 million people in the UK are currently borrowing from illegal lenders, also known as loan sharks. This often happens when they’re unable to find short-term loans or other more sensible alternatives.

As a responsible lender, we’re saddened to hear that so many people feel the need to turn to unlicensed illegal lenders. With this in mind, we’ve pulled together some insights on how to spot a loan shark and how to report one, and signposted to some loan shark alternatives.

In this guide:

• What is a loan shark?
• How bad is the loan shark problem in the UK?
• Do loan sharks target those with bad credit?
• How to report a loan shark
• As a legal money lender, what can we do to help?
• What’s the alternative to loan sharks?
• Further support

What is a loan shark?

A loan shark is a common term used to describe someone who lends money to members of the public but has no license to do so. Loan sharks typically charge high interest rates to borrowers, and there’s a risk you may be harassed if you fall behind with payments.

Are loan sharks illegal?

To lend money in the UK, a lender must be authorised by the Financial Conduct Authority (FCA). Lenders who aren’t authorised are referred to as loan sharks, or sometimes money sharks – this means they’re operating illegally and without the FCA regulation that oversees the consumer credit industry.

Loan sharks traditionally target people within their immediate area. They often seek out borrowers in pubs or from their surrounding streets, lending money without any credit checks or consideration for affordability. Now, they’re becoming even more dangerous because of social media, allowing them to target borrowers across the UK.

How to report a loan shark

If you’re wondering how to solve loan shark problems, the first thing you’ll need to do is report them.

If you’ve been targeted, report the loan shark to Stop Loan Sharks, either over the phone or by filling in the online form. Stop Loan Sharks investigates and prosecutes illegal lenders, providing practical support to borrowers in the UK.

How bad is the loan shark problem in the UK?

According to the research carried out by the CSJ, more people are turning to loan sharks as the pressure on their wallets increases. The research found that those falling foul of loan sharks do so in desperation, and often to pay for everyday costs. 62% have incomes of less than £20,000, 48% live in social housing, and 65% have a long-term health condition.

These lenders operate with no thought or consideration for borrowers. They typically use bad tactics to lure in vulnerable people and charge them extortionate interest rates and fees, commonly resulting in borrowers being financially crippled.

Do loan sharks target those with bad credit?

Often the loan sharks will have no understanding or knowledge of a borrower’s situation, offering money without any qualifying checks.

Loan sharks will lend to people without jobs, people on benefits, and those with long-term health problems who are unable to work. However, they then apply high interest rates, often asking for double the amount borrowed in repayments, and frequently use intimidatory tactics to recover the debts.

How to spot loan sharks in the UK

Next, let’s look at some key signs to look out for to help you avoid loan sharks:

• Lack of clear details: Many loan sharks will refuse to give you clear details about the loan, including specific interest rates or terms of repayment.
• Escalating interest or charges: Loan sharks typically keep adding on interest and extra charges, making it difficult to reduce the debt.
• Taking possessions for security: They may also take your personal possessions as security, such as a mobile phone, passport or bank card.
• Threats: Loan sharks have been known to use threats or intimidation tactics to get borrowers to pay.
• Cash loans: While more loan sharks are now using bank transfers, they typically prefer to deal with cash.

If you’re considering borrowing, keep an eye out for any of the above red flags, and make sure the lender is legitimate and FCA-authorised. Loan sharks can be deceiving, so if you’re at all unsure, call the Financial Conduct Authority or check the FCA register yourself.

As a legal money lender, what can we do to help?

The report on illegal lending has underlined the importance of responsible lending to the entire Moneyboat team. We found it interesting that 66% of those who borrow from loan sharks also owe money to legal creditors, which suggests that registered lenders have a part to play in protecting vulnerable people.

Moneyboat is a short-term loan lender, offering cash to those who can afford repayments to cover one-off expenses that can't wait until payday. We’re completely upfront about our interest rates and we charge no additional fees should a borrower want to repay early.

If a customer struggles to repay, our friendly team is there to provide open and honest support over the phone and by email. But most importantly, our lending decisions are based on highly effective affordability and creditworthiness checks to protect vulnerable applicants from taking out loans they can't afford.

What’s the alternative to loan sharks?

If you’ve been turned down for a loan from a legally-registered lender, but are struggling to make ends meet, a loan shark is never the right solution. Instead, we suggest the following:

1. Check you’re getting what you’re entitled to

If you’re on a low income or without a job, you could be entitled to benefits and tax credits. Organisations, such as Turn2Us and Citizens Advice can help you to check your entitlements.

2. Contact your existing creditors and try to restructure your debt

If you have existing debts in the form of loans, store cards and credit cards, for example, don't be afraid to contact these creditors and explain that you’re struggling financially. Consumer credit is a highly regulated industry and measures are in place to protect vulnerable people.

Lenders should be able to help you work out a repayment plan that will work for you. After all, a lender would rather receive a repayment over a longer period of time than fail to receive a repayment at all. If you can sort a minimum payment plan out, you may find you have a little more spare each month to cover other costs.

3. Be open and honest with your energy suppliers

If you owe money to an energy supplier and you cannot afford to pay your bill, contact them immediately. They’re legally obliged to help you repay with a payment plan that better suits you. If you continue to be unable to repay, they may suggest installing a pre-pay meter in your home, but it is rare that they would cut off your supply providing you continue to repay your debt. Energy supplies cannot be cut off in the winter months if you have children or older people in your household, regardless of your debt with your supplier.

4. Use local services like food and clothing banks

If you’re struggling to find the cash to pay for food and clothes for yourself or your family, you’re not alone. There’s no shame in getting help when you need it and using a food or clothing bank is a safe and practical step to help your household get through the current cost of living crisis. Organisations like the Trussell Trust have long been helping those who need support.

5. Ask friends and family for money

Although it’s never easy to admit to your loved ones that you’re struggling financially, you’ll often find that if they can help you, they will. Most of us would hate the idea of a family member feeling desperate enough to turn to loan sharks for the sake of a relatively small sum of money.

In support of tougher action

The CSJ is now calling for tougher penalties for those found guilty of illegal lending, as well as public education in the form of a national advertising campaign to warn people of the dangers of borrowing this way.

We’d like to lend our voice to the calls for the issue of loan sharks to be taken more seriously, especially as we face unprecedented pressures on our personal finances. We’ll continue to take every measure necessary to protect the vulnerable from unaffordable debt and support those struggling to repay their loans with proactive payment plans, compassion, and patience.

Where can I seek further support?

If you’re looking for debt advice or support, there are a variety of organisations in the UK that are on hand to help. These include:

• StepChange
• Debt Advice Foundation
• National Debtline

And if it’s additional insights you’re after, you’ll find plenty over on the Moneyboat blog. There you can read about how to avoid payday loan scams and what to do if you're struggling to repay a payday loan.