Before approving a loan application, banks and other legitimate lenders usually look at the applicant's credit history and how well they have paid back loans in the past. This makes it hard for people with bad credit to get a loan from these reputable finance companies. Many people with bad credit who need money right away will turn to illegal money lenders. Most of the time, these people who lend money illegally charge very high interest rates and often use blackmail or threats of violence to back up their loans. So, if you borrow the money from a loan shark, you are taking a risk.
What does a "loan shark" mean?
A loan shark is a person or group that gives people illegal, unsecured loans with high interest rates, often with the help of blackmail or threats of violence. A loan shark is a person who lends money without a licence and helps people who can't get credit from a real financial institution.
What are the downsides?
Loan sharks are people who lend money to people who need it but don't have a licence to do so. But there's always a big catch: how much you have to pay back. Most of the time, the terms are very bad. People often borrow a small amount of money and end up paying double or triple that amount in interest.
Many loan sharks base their interest rates on the amount of the loan's principal, which can be as high as 12 percent per month (144 percent APR). For example, if you borrow $5,000 from a loan shark, the interest alone will cost you $600 every month. If you only pay $600 a month on your loan, you will never pay it off because the interest rate is based on the principal amount. The $600 you pay each month is the interest.
Putting your money in a savings account that earns interest will help you save more money. But if the poser of interest is used on a loan, especially on the loan from a loan shark, it will be very scary as it will generate more and more debts and it make you harder and harder to repay your debts. Take the example from above, where you borrow $5,000 from a loan shark but can only pay back $500 per month. In two years, your debts will have grown by about $18,000, and you will have paid $12,000 in interest. If you keep paying only $500 to the loan shark, your debts will continue to grow in a very scary way. In another year (the third year), you will owe $50,000 for your $5,000 loan and $18,000 in interest.
After getting a loan from a loan shark and not being able to pay it back, many people run away and hide from them. And loan sharks will do things to get their money back. Often, they will send blackmail letters, put scary things at their borrower's house, make scary phone calls, and have their "staff" waiting for clients at their homes. In this process, violence could be used, and the borrower or his or her family could get hurt in the worst case.
In conclusion,
It is against the law to borrow money from a loan shark, and if you do, you risk getting hurt and your debt will grow like a mushroom in a short amount of time. You should think about the ways you could get the money. There are loan programmes for people with bad credit. Talk to a local finance consultant to learn more about your options.
