Loan Sharks Do Brisk Business in U.K.

[Jan 15, 2010.]

 

More folks in the U.K. have turned to loan sharks for personal loans as they struggle to repay bills, according to a new report featured in The Guardian. "The Real Cost of Christmas" was commissioned by the Circle Anglia, a housing provider, and written by the Financial Inclusion Centre.

Personal Loans for Desperate Families

Over the past three years, about 200,000 U.K. households borrowed money from loan sharks, a 22% increase. More than 100,000 of the country's poorest families are going to spend this year struggling, with a combined debt of about 82 million pounds ($133.2 million).

Interest rates on those loans average an 825% annual percentage rate (APR), which means these people are going to pay almost three times what they borrowed. Many of the loans were borrowed at Christmastime. Other people turned to loan sharks because they were unable to get credit elsewhere.

Loans Are Written Off

Loan sharks are not authorized to lend money. A government program set up in 2007 has helped about 10,000 people write-off illegal debts owed to loan sharks.

Although it seems like common sense not to use loan sharks, many people are so desperate to get some money that they are willing to suffer the consequences. Loan sharks also don't check credit reports.

Predatory Lending

Loan sharks aren't just gaining steam in the U.K. They also lend money in the U.S. and other countries. "During a time like this, predatory informal lenders have the advantage," Brian Gurski, an educator at LaGuardia Community College in New York said in a Wall Street Journal article.

Predatory lenders also include payday lenders who charge exorbitant rates to loan money to people struggling to get by between paychecks. Payday lenders, also called cash advance lenders, roll over debts repeatedly when borrowers are unable to pay.

Personal Loans Come with Risks

If you are tempted to borrow money from a loan shark or other predatory lender,  do all you can to find other ways to get your hands on cash. You should never work with unlicensed lenders.

Not only do borrowers end up paying too much interest, but there also is a real threat of bodily harm if personal loans go unpaid. Loan sharks also may threaten to ruin a person's reputation if the money isn't repaid.

Anyone who has already borrowed money from a loan shark should talk with a financial advisor, credit counselor, or even an attorney to find a way out.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.