What Is a Loan Shark?

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Written by: Guest | Best Company Editorial Team

Last Updated: November 1st, 2019

Shark swimming in water

When the need arises to seek out a loan, for whatever the reason, most people turn to a reputable financial institution or lender to service their needs. Doing this provides assurance and peace of mind that a person's financial interests will be taken care of and that they will have some measure of protection. Reputable lenders guide the applicant and borrower through the entire process and provide expertise and experience to help ensure the person is getting the best loan and the best service for their unique situation.

When the need arises to seek out a loan, for whatever the reason, most people turn to a reputable financial institution or lender to service their needs. Doing this provides assurance and peace of mind that a person's financial interests will be taken care of and that they will have some measure of protection.

Reputable lenders guide the applicant and borrower through the entire process and provide expertise and experience to help ensure the person is getting the best loan and the best service for their unique situation.

Unfortunately, not all loans are serviced by people or entities that have the customer's best interests in mind.

A loan shark certainly fails into this category.

You're probably familiar with this term, though hopefully you haven't had the misfortune of dealing with a loan shark. Such a person or organization normally operates in illegal businesses and lends money under shady, unethical circumstances.

In short, a loan shark grants loans at extremely high-interest rates. Loan sharks operate under the table and have been known to use force and intimidation to compel debtors to repay loans. Loan sharks have been associated with illegal acts and gambling.

Loan sharks can be traced clear back to the 19th century with salary lenders who offered small-time loans and would threaten legal action if the loans were not repaid. By the 1920s and 30s, loan sharks began to use violence to enforce their loans. They would accept high-risk borrowers that banks and traditional lenders would summarily reject. Loan sharks were an attractive option for these types of customers because there was an absence of restrictions and paperwork.

The most notorious loan sharks were typically linked to the mafia which was looking for more work after the end of prohibition. By the 1960s, loan sharks began to have success catering to small and medium-sized businesses.

Today, some observers have characterized payday or title loan companies as loan sharks, due to the exorbitant rates they charge. Some payday loans charge an annual percentage rate (APR) of 400 percent, 20 times larger than the typical credit card. These companies don't use violence to enforce the loans, though some feel that their high-interest tactics trap naïve or desperate customers.

Some investing and financial experts consider anyone who charges above the state limit for interest rates to be a loan shark. In most states, lenders cannot charge more than 60 percent per annum.

If you currently find yourself owing money to a loan shark, seek professional advice to help rescue you from this trap.

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