If you’ve been looking out to know How Loan Sharks Work? Loan sharks are unlicensed lenders who don’t follow any rules. They might charge high interest rates and threaten or scare people who borrow money from them. Find out how to spot a loan shark and report them.

In March 2022, a report from The Centre for Social Justice said that just over a million people in the UK had borrowed money from a loan shark or other illegal lender.

People who are especially weak and desperate for money or who have other problems on top of their money problems may be targeted by these illegal money lenders.

And because many households are already having trouble keeping up with the rising cost of living, even before the expected rise in energy bills, there is a chance that even more people will turn to loan sharks for money.

It’s important to note that lending money without permission is illegal, but borrowing from a loan shark is not. So, if you borrowed money from a loan shark, you don’t have to worry that telling the police about them will get you in trouble.

Find out more about loan sharks below, whether you want to know how to spot them or you’re worried that you or someone you know is already in debt to one.

What is a loan shark?

Loan sharks are people or businesses that illegally lend money without permission from the Financial Conduct Authority (FCA). They could be a group of people working together to look like a real lender, or they could be a single person you meet in your everyday life.

A person who lends money illegally may be known in your area, and they could approach possible customers and ask if they need some extra cash.

It can be dangerous to borrow money from a loan shark, but it may not always be easy to spot one. For example, a loan shark could be a person you know who at first seems friendly and helpful, giving you a false sense of security before they become more scary and threatening.

This might not just happen in person, either. A report from The Centre for Social Justice in March 2022 said that loan sharks often harass their victims on social media sites like Facebook and Twitter.

Why are loan sharks dangerous?

In order to legally lend money in the UK, lenders must be licensed and regulated by the Financial Conduct Authority (FCA). This makes sure that lenders follow the rules and gives protection to the people who borrow money.

Loan sharks are not regulated, so they do things that are against the law. Loan sharks may not feel like they have to meet any of the standards set by the FCA for their industry, which puts anyone who borrows from them at risk.

Loan sharks, for example, often charge very high interest rates and may even threaten or hurt you if you can’t pay them back. Even if you only borrow a small amount of money at first, a loan shark could catch you and make you pay back thousands of pounds.

Some loan sharks may be involved in other illegal things as well. As a way to pay back their loan, some people have been forced into even more serious and dangerous situations, like selling drugs.

When you borrow from a loan shark, it’s easy to get stuck in a cycle of debt, which can have long-term effects on your finances and other parts of your life, like your mental health and your relationships with family and friends.

If you’re having trouble with debt, you can get free help and advice from charities that help people with debt.

How to spot a loan shark

If you look at the Financial Services register or the Loan Smart website, you can find out if a lender is allowed to lend money. If they are not on the list, they can’t legally lend money. If you still don’t know if a lender is legitimate after looking at the register, you might want to talk to the FCA.

If you’ve been talking to someone who says they work for a legitimate company, you might want to call the company to make sure the person really does work for them.

In addition to making sure that a lender is approved by the FCA, here are some signs that someone might be a loan shark.

A cash loan was made to you. Loan sharks usually work with cash, but you should be aware that they may also do business online.
Not enough paper work. All legitimate lenders will give you the paperwork you need to understand the terms of the loan. Loan sharks won’t sign a written contract with you.

There wasn’t enough information about the loan, like the interest rate and how to pay it back. Loan sharks might not be clear about how much interest they charge or when the loan needs to be paid back.
lending money without checks. Loan sharks, unlike legal lenders, won’t check your credit or see if you can pay back the loan.

Taking any of your things as collateral. Loan sharks may take valuables or even things like your passport or bank card, which they say will be “security” for the loan.

Behaving in a violent and threatening way. If you don’t pay back the loan, loan sharks may try to scare or hurt you, which a legal lender would never do. This could happen in person or online, such as through threatening messages.

Your loan is never paid back. If you borrow money from a loan shark once, they are likely to charge you such high interest rates that you will never be able to pay it back in full. They may also keep you in debt by lending you more money or charging you more fees.

If you just met someone who wants to lend you money. Even if they seem nice and you think you can trust them, you should always be careful if they offer you a loan if you don’t know them very well.

Some loan sharks may act like payday lenders or people who lend money on the street. But these lenders must be approved by the FCA, so you can check the FCA register to see if they are real.

Many families are having a hard time making ends meet because the cost of living is going up. In this situation, it might be tempting to borrow money from a loan shark to pay bills or buy food, for example.

But if you need money, don’t borrow it from a loan shark. Even if you have bad credit, you can still get a loan from a credit union or a company that specializes in loans for people with bad credit.

If you have bad credit, you may have to pay more in interest than someone with a good credit score, but this is always a better option than borrowing from a lender who is not legal.

If you have already borrowed money from a loan shark, you haven’t done anything wrong, but you should report them as soon as you can.

What if I borrow money from a friend or family member?

Even though they’re not licensed by the FCA, it’s not against the law for a friend or family member to lend you money. So, if you need a one-time loan, you can ask a friend or family member for help.

Most of the time, borrowing from friends or family is better than getting a loan from a bank because you won’t have to pay interest. But make sure that both of you understand the terms of the loan, like how and when you will pay it back.

If you borrow money from friends or family, they can’t use illegal methods, like bullying or threatening you, to make you pay it back.

Be careful about taking a loan from a friend or acquaintance you don’t know very well or haven’t known for long. Someone who seems nice and wants to help you out by giving you a loan could turn out to be a loan shark in the future.

You should only borrow money from people you know you can count on. If you’re not sure about them, don’t give them any money.

What if I got a loan from a loan shark?

If you or someone you know thinks they have borrowed money from a loan shark, the first thing to know is that you have not done anything wrong.

It is illegal to lend money without the right permission, but it is not illegal to borrow money from someone who is not authorized to do so. So, if you’ve borrowed money from a loan shark, you shouldn’t feel bad or worry about getting in trouble with the police because you haven’t broken the law.

Loan sharks may threaten you and say they’ll take you to court to get you to pay back the money. But they don’t have the right under the law to do this, and you don’t have to pay them back. The person who borrowed the money did not break the law; the loan shark did.

If you’ve borrowed money from a loan shark or think someone might be one, you should report them right away.

How to report a loan shark

You can tell someone about a loan shark without giving your name, or you can give your name and more information to help the investigation. All information about loan sharks will be kept secret and looked into.

In England, you can use the Stop Loan Sharks website to report a loan shark. Or you can call 0300 555 2222.

In Scotland, you can tell Trading Standards Scotland about them through their website or by calling 0800 074 0878.

In Wales, you can call 0300 123 3311 to get in touch with the Illegal Money Lending Unit.

In Northern Ireland, you can call the Trading Standards Consumerline at 0300 123 6262 to report a loan shark.

Call the police if a loan shark is putting your life in danger right now.

After you report a loan shark, you can choose to be called back to talk more about what happened. You may also have a liaison officer who will help you through the investigation and deal with any worries you may have about money.

You can make a formal witness statement if you report a loan shark. But you can stay anonymous if you want, and the investigation will still go on.