Loan Sharks: Shedding Light on Illegal Money Lending

In Series 2 Episode 2 of our Pocket Perspectives Podcast, we covered the topic of illegal money lending and loan sharks. This is something that so many of us don’t know anything about unless we have experienced it ourselves.

Often, people with no legal licence to lend will take advantage of those who are in need of money. These people can be anybody. They could be another mum at the school gates, or one of your neighbours. Just over 1 million people could be borrowing from an illegal money lender in the UK.

Chatting with Cath Wohlers, The LIAISE Manager at StopLoanSharks, we covered exactly what loan sharks are and how to look out for them. We also looked at the impacts they can have through real-life examples, and how you can seek help.

Legal vs Illegal Lending

So, if you are unsure, lending is essentially borrowing money. This could be as simple as borrowing £10 from your mum to pay back next week. Or, it could be taking out a car finance agreement. Any situation where you are borrowing money with the intention of this money being paid back is lending. 

When you think of legal lending, this is a type of lending that follows rules set by regulators. This basically means that you can be certain that the money has been lent to you from a licensed institution with fair interest rates. 

For example, if you take a loan from your bank, you can be certain that all the right criteria have been met for this loan to be legal.

On the other hand, illegal lending does not meet any of these rules. Illegal money lenders, also known as loan sharks, target those who struggle to access traditional loans. They trap vulnerable people with sky-high interest rates and use intimidation tactics to keep them trapped. 

28% of our customers over the last 3 months recorded a vulnerability for themselves or a member of their household. This is a huge number of people who might be potential targets for loan sharks.

Spotting the Signs of Loan Sharks

Knowing the warning signs can keep you from getting involved with loan sharks. The people you would least expect to be loan sharks could in fact be one.

For example, a person that you see every morning on the school run might notice you are struggling. They might then offer to lend you £50 until you get paid. They initially appear friendly and empathetic. However, a week passes by, and they subtly drop that they want to add 10% interest onto that £50 just because they think they deserve it for doing you a favour. Then weeks go by, and the interest is now at 50%, you owe them £500, and they are threatening you at the school gates. 

You can also spot the signs of other people going through this. You can watch out for:

1. Excessive secrecy: Borrowers may be unusually secretive about their financial transactions or hesitant to discuss their loans.
2. Sudden lifestyle changes: Individuals involved with loan sharks may exhibit abrupt changes in their living conditions, behaviour, or spending patterns.
3. Frequent contact or harassment: Borrowers may experience persistent and aggressive communication from lenders, demanding repayments.
4. Fear or anxiety: Victims may display signs of fear, stress, or anxiety related to their financial obligations.
5. Unexplained possessions or assets: Individuals involved with loan sharks may acquire assets or possessions that cannot be accounted for based on their income.

There are so many extremes of this where it could be subtle threats, or even violent threats to ensure that payments are made and to keep the person hooked into the trap.

Our data shows that the average debt owed to friends and family is £4,336 with an average monthly payment of £145. In the last 3 months, over £199,000 has been recorded as owed to friends and family. The lowest balance is £280 and the highest is £40,000.

As previously mentioned, it is often those you see regularly in your life, such as somebody that lives on your street, that might trap you into this in the first place. Therefore, it is crucial that you are aware of the signs, so that if you ever find yourself in a vulnerable situation where you need money fast, you will avoid illegal lenders.

The Impact of Loan Sharks

Anybody can be affected by Loan sharks. However, here are just a few examples of some vulnerable groups of people that may be more likely to be targeted:

1. Low-Income Individuals: They seek quick solutions to financial challenges.
2. Individuals with Poor Credit Histories: If traditional, legal lenders deny them loans.
3. People Facing Urgent Financial Crises: Individuals in immediate need of funds for emergencies may fall prey to the quick but harmful solutions offered by illegal lenders.
4. Immigrant Communities: especially those unfamiliar with local financial systems, may be targeted due to language barriers or lack of awareness.
5. Elderly Individuals: may be targeted as they seek additional financial support.
6. Individuals Experiencing Job Loss or Unemployment: when facing financial hardships.
7. Those Who Lack Financial Literacy: unaware of legal alternatives and the risks associated with illegal lending.

The damage that is caused by loan sharks doesn’t just stop at the money-related issues either. There is also emotional strain and mental health struggles that come as a result.

Emotional Toll of Loan Sharks:

1. Borrowers face fear and anxiety from threats and intimidation, making them feel constant insecurity.
2. Shame and stigma come with this, affecting individuals and families emotionally.

Financial Toll of Loan Sharks:

1. Crazy interest rates create a constant cycle of debt, preventing the ability to meet basic needs or save.
2. Loss of valuable assets as collateral can cause financial instability.

Psychological Toll of Loan Sharks:

1. Constant pressure from illegal lenders contributes to depression and a sense of helplessness.
2. The stress of unmanageable debt and fear of violence can severely impact mental health, leading to conditions like anxiety and depression.

Speak Up, Get Help

It is so important to remember that you do not have to deal with all of this alone. You can speak to your loved ones who might be able to help you through it! 

Stop Loan Sharks investigates and prosecutes illegal money lenders and provides support for borrowers in the UK. If you have borrowed from a loan shark or are worried about someone else, they are there to help and keep you safe. Their specially trained staff will provide you with emotional and practical support that is tailored to your needs.

You can call them 24/7 on 0300 555 2222 or start a Live Chat with them by clicking on the chat icon in the bottom right-hand corner of their website. This service is available 9am-5pm, Monday to Friday. 

If you are deaf or hard of hearing they can provide a BSL interpreter and they have a number of BSL resources on their YouTube channel. 

Don’t suffer in silence. Reporting illegal money lending helps stop these people from impacting other vulnerable people. Spread the word, boost your financial knowledge, and know there are people and resources ready to support you.