Loan sharks and unregulated creditors

Unlicensed, unregulated and illegal - loan sharks can resort to intimidation, threats or violence – don't use them!

What is a loan shark?

Loan sharks are illegal lenders who often target low income and desperate families. They may seem friendly at first but borrowing from them is never a good idea – even if your credit rating is poor or you only need a small amount for a short while.

Why loan sharks are bad

WARNING

Some loan sharks have attempted to charge interest rates as high as 719,000% (Source: BBC news)

This means that if you borrow £1 for 3 months at that rate, you would have to pay back £1,796 in interest (and the £1 you originally borrowed)!

Loan sharks will start out appearing friendly. And if you keep up your repayments they might stay that way. But the reality is, even if you do, any money you borrow will come at a very high price.

There are many risks attached to borrowing from a loan shark.

  • You pay far more in interest than you would through any legal borrowing. One woman who borrowed £500 ended up repaying £88,000.
  • You may be harassed or threatened if you get behind with your repayments - there have been reports of people being intimidated or attacked. 
  • You are often pressured into borrowing more money to repay one loan with another and end up in a spiral of debt that you can never repay.

How to spot a loan shark

A loan shark may:

  • Offer little or no paperwork, such as a credit agreement or record of payments
  • Increase the debt or add additional charges at any time
  • Refuse to give information, such as the interest rate or how much you owe
  • Take items as security, such as passports, bank cards or driving licences
  • Refuse to allow you to settle your debt 
  • Get nasty – they may resort to intimidation, threats or violence

How to check a lender is legitimate

The Financial Conduct Authority (FCA) keeps details of all licensed lenders. If a lender isn't listed as having a current authorisation to lend money, don't borrow money from them and don't let them come into your home.

Check the FCA register to see if a lender is authorised.

Loan sharks and the law

Money fitness tip

If you budget sensibly you may be able to avoid having to borrow money - use our Budget planner to get started and make a plan so you don't get caught out.

Although some loan sharks resort to intimidation and even violence, they are not beyond the law. Any lender – authorised or not – who harasses you is breaking the law. Some loan sharks will threaten you by saying you will be prosecuted and even sent to prison if you don't pay up. This can't happen – an unlauthorised lender such as a loan shark has no legal right to recover the debt.

In fact, they have no legal right to make you pay the loan back at all - because the loan is illegal.

Reporting a loan shark

If you have been approached by someone you think is a loan shark, you need to report them and contact the police if you are in immediate danger – see Dealing with loan sharks

Alternatives to loan sharks

If your income is low, you have a poor credit rating or you only need a small amount for a short while, there are reputable lenders you can turn to instead of loan sharks. See also Alternatives to expensive loans.

Check they are authorised by the FCA, and shop around for the best deal.

Credit unions

Look into borrowing from a credit union - although you will have to become a member and they might ask you to save an amount before you can borrow. See Credit union borrowing.

Help from the government

If you are short of money, ensure you are getting all of the benefits you are entitled to - see Grants and state benefits

If you desperately need to borrow money, you may be able to apply for an interest-free Budgeting Loan from the Social Fund. Alternatively, other help may be available from your local authority in England, or the Scottish and Welsh governments.

Help from charities

You can get grants or loans for essential household goods or other emergencies from The Royal British Legion's Immediate Needs Grants Scheme, or some of the many Service charities available – see Other Service organisations on the Legion's Knowledgebase.

Dealing with debt

If you're thinking about using a loan shark because you can't borrow money anywhere else, there are a number of organisations which offer free debt advice, such as The Royal British Legion, Citizens Advice,  StepChange Debt Charity or National Debtline. See Where to go to get help if you are in debt.

Last reviewed: 12/03/2019

This content has been provided by the Money Advice Service