Loan shark definition
/What is a Loan Shark?
A loan shark is a person or business that charges a higher interest rate for loans than is allowed by law. Maximum interest rates are typically set at the state level, so an entity is considered a loan shark if it lends above the legal interest rate in the state in which it does business.
Loan sharks use threats of various kinds to obtain repayment. Threats can include spreading rumors about the borrower, damage to one’s property, or threats of physical harm. They may be members of organized crime gangs.
Are Loan Sharks Illegal?
Loan sharks are generally illegal in most countries, for the following reasons:
Unlicensed lending. Loan sharks operate without the necessary licenses required by financial regulatory authorities.
Excessive interest rates. Loan sharks charge interest rates far above what is legally allowed, often leading to predatory lending practices.
Illegal collection methods. Loan sharks often use threats, coercion, or violence to force repayment, which violates laws governing debt collection practices.
Exploitation. Loan sharks target vulnerable individuals who may have difficulty obtaining loans from legitimate financial institutions, trapping them in cycles of debt.
Loan Sharks vs. Predatory Lenders
Loan sharks lend at rates higher than allowed by law, while predatory lenders charge very high rates, but at rates that are allowed by law. An example of a predatory lender is a payday loan company. Since lending rates are set at the local level, a business that lends legally within one jurisdiction might be considered a loan shark in another jurisdiction that caps lending rates at a lower level.
Example of a Loan Shark
An example of the predatory lending terms used by a loan shark would be lending $1,000 and then requiring a repayment of $1,500 within 60 days.