Borrowing from a loan shark might feel like your only option when you’re in a pinch and need cash fast. These illegal lenders have few requirements and can seem easier than going to a legit lender. But there are safer alternatives out there — especially if you’re a member of a credit union or live in a state where payday loans are legal.
What is a loan shark?
A loan shark is an unlicensed lender who charges interest rates and fees that are higher than the legal limits set by the state. They typically have less favorable terms than legitimate lenders and aggressive debt collection practices if you can’t repay on time.
Traditionally, you could find them at local businesses or through word of mouth. Now, you can also find them online. They typically target borrowers from low-income areas, especially those facing a financial emergency.
How do loan sharks work?
Loan sharks work by providing money you have to pay back by a fixed date, either in full or through installments. They don’t have the same requirements as legitimate lenders: There’s no credit check or income requirement, and you don’t need a bank account. They also typically don’t care if you’re undocumented. Some might ask for collateral — like an ATM card, driver’s license or passport.
For their service, loan sharks charge extremely high interest rates, even compared to payday lenders. They also provide larger amounts than legally allowed for such short terms, which translates into sky-high repayments and less room to come up with the cash.
If you can’t pay it back, many loan sharks tack on aggressive fees or raise the interest rates. Others will keep any collateral you provided.
Can I find a legitimate loan shark?
No. By definition, loan sharks are illegitimate. However, there are legitimate short-term lenders that have similarly flexible eligibility criteria and offer financing at rates that meet legal requirements in your state.
Many short-term lenders will work with all credit types and are flexible about where you receive your income. You can sometimes get a payday or auto title loan that will provide funds in cash if you don’t have a bank account. If you need more than a payday lender can legally offer, installment lenders often offer loans up to $5,000.
Where can I find a loan shark online?
It’s possible to find a loan shark on online forums like Reddit, 4chan, 8chan or even Quora. You can also find loan sharks offering cryptocurrency loans on crypto message boards and forums. But the cost and risk of borrowing from a loan shark isn’t worth it, especially when there are plenty of legitimate alternatives out there.
Loan sharks vs. payday lenders vs. tribal lenders
You might have heard of payday and tribal lenders referred to as loan sharks. But these are technically legitimate lenders, even if they can be extremely expensive.
Payday lenders. These short-term lenders offer small-dollar loans to bad-credit borrowers. They charge high fees — sometimes the equivalent of 700% APR — but they’re regulated by your state and the federal government.
Tribal lenders. Though they work like payday lenders, the main difference is they’re regulated by tribal law rather than the US government. This often means you’ll pay higher interest rates than you would with a payday lender — and have less recourse if you have a complaint.
Online alternatives to borrowing from a loan shark
If you need cash fast and don’t have the best credit, consider the following alternatives before borrowing from a loan shark. You can often apply for these online.
Pay advance apps.Pay advance apps like Earnin allow you to cash out the salary you’ve already earned before payday swings through, often for a suggested donation.
Installment loans.Borrow between $500 and $5,000 with APRs typically from 100% to 300%, available to borrowers with bad credit or unconventional sources of income.
Payday loans. Get a loan of up to $500 and pay it back in full on your next payday. You typically pay around $10 or $15 per $100 borrowed, though it depends on where you live and if they’re even legal in your state.
Local bank and credit union loans. Look to your local financial institutions for small-dollar loans with more flexible eligibility criteria. Some only require your individual taxpayer identification number (ITIN) rather than your Social Security number, which can help undocumented workers get funding.
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Loan sharks might be appealing if you’ve had trouble qualifying for a loan in the past. But consider the alternatives first — you can likely find a safer option with more reasonable rates and terms.
A loan shark is a type of predatory lender, but not all predatory lenders are loan sharks. Predatory lenders use tricks to make borrowers agree to unfavorable terms — often illegally. You can learn more about how they work and what to watch out for with our article on predatory lending.
First, check your state’s laws for the type of loan you have and use that as your guideline to make sure it’s acting legally. If your state requires a license, ask to see the license. If it says it’s regulated by a tribal council, verify it with the council.
If it charges more interest or fees than the state allows, it might be a loan shark if it’s not a tribal lender.
No. Loan sharks are acting illegally, so they can’t sue you for repayment. But they usually have connections to unsavory organizations that might harass or threaten you into honoring the terms of your loan agreement.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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