What's a loan shark? (And why should loan sharks always be avoided...?)

Worried looking father inspecting paper work with wife and baby in the background

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

As a responsible lender, we’re saddened to hear that so many people are turning, in desperation, to unlicensed illegal lenders. These lenders operate with no thought or consideration for borrowers. They’ll use unscrupulous tactics to lure in vulnerable people and charge them extortionate interest rates and fees that commonly result in borrowers becoming financially crippled.

What’s a loan shark?

A loan shark is the common, colloquial term used to describe someone who lends money to members of the public but has no license to do so. This means they are operating illegally and without the FCA regulation that oversees the consumer credit industry.

Loan sharks traditionally targeted people within their immediate locale. They would often seek out borrowers in pubs, or from their surrounding streets, and lend money without any credit checks, or consideration for affordability. Now, they’re becoming even more dangerous because of social media.

Using social media, loan sharks are targeting borrowers all over the UK. Often the loan sharks will have no understanding or knowledge of a borrower’s situation and money will be offered without any qualifying checks.

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

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. We’re all seeing huge increases in utility bills, thanks to the energy price cap rise. And at the same time, the cost of everything from food and petrol, to clothing and household essentials, seem to be constantly rising.

With so many people living below the poverty line, it’s not surprising that vast numbers hope that borrowing some money will help them meet a short-term cost. 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.

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

Reading 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 lender, offering cash to those who can afford repayments, to cover one-off expenses that can't wait until payday. We are completely upfront about our interest rates and we will never penalise a borrower for repaying early.

If a customer struggles to repay, we initiate open and supportive communications, through email and post, between borrowers and our friendly collections team. 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 to repay.

So 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:

Check you are getting what you’re entitled to

As a person on a low income, or without a job, you could be entitled to benefits and tax credits. Applying for these benefits and checking what you may be entitled to isn’t as straightforward as it should be. Organisations, such as Turn2Us and Citizens Advice can help you to check your entitlements.

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 are 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, for example, you may find you have a little more spare each month to cover other costs.

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 are 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, however, small the repayments. 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.

Use local services like food and clothing banks

If you are struggling to find the cash to pay for food and clothes for yourself or your family, you are not alone. Around 2.5 million people used food banks in 2020/2021 and this number is likely to rise further in 2022. 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.

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.

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 would 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 will 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.

Moneyboat's service is rated Excellent

Blog Disclaimer

We do all we can to bring you interesting, practical and valuable information. However, please understand the following:

  • Moneyboat.co.uk are in no way connected or affiliated with the application or affiliate links mentioned in this or any article. We do not receive any commission and are not responsible for any charges that may result from any free trials or paid subscriptions.
  • Moneyboat.co.uk does not provide medical advice It is intended for informational purposes only. It is not a substitute for professional medical advice, diagnosis or treatment. Never ignore professional medical advice in seeking treatment because of something you have read on the site. If you think you may have a medical emergency, seek medical advice immediately or dial 999.
  • Information and data on this blog are for information purposes only. While we work hard to ensure it is accurate, we cannot accept responsibility for the accuracy, completeness, suitability or validity of any information provided on the blog. We will not be liable for any errors, omissions, losses, injuries or damages arising from its display or use. All information is provided with no warranties and confers no rights.

If you feel that any of the information published on our blog is not accurate, please notify us via email at thecrew@moneyboat.co.uk.

Representative Example: Borrow £400 for 4 months, 4 monthly repayments of £149.37. Total repayment £597.48, interest rate p.a. (fixed) 255.5%. Representative APR 939.5%.Compare Moneyboat loans.

Warning: Late repayments can cause you serious money problems. For help, go to www.moneyhelper.org.uk.

Latest blog posts

UK Credit Score Index | Moneyboat Short Term Loans

UK Credit Score Index

Curious about UK credit scores and public perceptions? We dive into the world of credit scores and uncover the real emotions and myths around them.

How Brits feel about how much they pay towards bills

Do Brits split their bills fairly?

Wondering if you’re getting a fair share from the bills you split in your household? Our latest blog investigates how Brits split their bills and how fair we find it.

The Cost of Food Index

The Cost of Food Index

Are rising food costs affecting your finances? Read Moneyboat's guide for insights into the top 10 inflating foods and tips for managing your budget.

A piggy bank

Money and borrowing help

Talking About Money

Talking about money can be a sensitive topic for many people, and there are many reasons why people might not be comfortable talking about money.