Licensed Loan Sharks Overview: How It Works, Pros And Cons

Running short of funds can make people desperate. So desperate they’d take loans from anyone, and it is people in precarious situations like this that fall prey to “licensed loan sharks”.

But know this; there are no “licensed loan sharks”, one is either a licensed lender or not.

Ideally, if a lender isn’t licensed by the FCA, he or she is a loan shark. And you should avoid them, lest they “bite”.

Because people continue to fall prey to these sharks, we will help you understand how these “predators” work in this article.

Additionally, the article will offer you legitimate alternative lending channels and processes.

Therefore, if you’d like to understand what it means to be a loan shark, their “modus operandi”, or you want to wriggle yourself out of their clutches if you’re already in bed with them, read the article to the end.

Meanwhile, you might want to take a look at our table of content for an overview.

According to A recent study showed that 80% of Americans are caught up in the chains of debt. 

That’s a huge number! To get a better idea of just how huge, try this little activity: Next time you walk down the street, count the first 10 people you see.

According to statistics, 8 of those 10 are strapped with debt. It might just feel like an inconvenience to some, but it may be ruining the lives of others—like the single parent or the widow.


Debt is one thing virtually everyone has experienced at one point in their life. Either you were or still are the borrower or the lender.

Debt is not necessarily a bad thing, why you’re in debt and how you service your debt is what matters.

Additionally, where you get the loan from is also important, and can make or mar your finances. In the extreme, your life.

America is a great country no doubt, but they too are in debt.

As a matter of fact, In December 2020, the public debt of the United States was around 27.75 trillion U.S. dollars, over 4.54 trillion more than a year earlier, when it was around 23.2 trillion U.S. dollars.

However, we’re not talking about that now. Rather, we’d like to discuss loan sharks.

So what or who is a loan shark?

Who Is A Loan Shark?

A loan shark is an unlicensed moneylender who often targets families on low incomes or those who find themselves in difficult times.  

Licensed moneylenders are regulated by the Financial Conduct Authority (FCA) and must follow the FCA’s codes of practice. 

Loan sharks are not licensed and operate outside the law. If you borrow from them it’s likely you’ll:

  • Get a loan on very bad terms
  • Pay a huge rate of interest
  • Be harassed if you get behind with your repayments
  • Be pressured into borrowing more from them to repay one debt with another

How Does Loan Shark Work?

Loan sharks like we said earlier re on licensed lenders who prey on financially disadvantaged desperate families to make a living. They usually charge exorbitant or high-interest rates.

Loan sharks can be very persuasive, sometimes they talk people into taking more money than they need. The idea behind that is, that when you take more than you can pay for, you end up defaulting.

When one defaults it’s even more money for the sharks, because interests that are usually outrageous continue to grow.

They offer dubious contracts to unsuspecting customers in a bid to ensure they falter.

They are illegal and would accept personal effects as collateral, and when you can’t pay as agreed, they threaten with violence.

READ ALSO: How To Sell a Car With a Loan In 2022

How Do I Spot Out A Loan Shark?

Loan sharks operate with speed, ease, and convenience. And these are a few of the reasons we solicit loan sharks. With their lenient lending criterion and instant loan approval, it’s hard to say no.

However, it’s hard to escape the wrath of illegal money lenders once you’ve started dealing with them. Their lending has no end.

Here are other things that give loan sharks away:

Questionable Contract Or Not Contract At All.

One of the red flags that loan sharks wave is not having a contract. When they do, is very questionable; usually too good to be true.

They include unfair clauses that are hard to spot, and these clauses end up hurting the borrower.

So whatever you do, read the contract properly and ask questions, when it’s not clear to you, flee!! For you’re dealing with a loan shark.

Takes Personal Items As Securities

Loan sharks would ask for your personal effect as securities. This is unlawful and should be reported. A reputable licensed lender would never ask for your personal properties.

Too Pushy Or Aggressive

Most loan sharks have sweet tongues, especially when they are convincing you to take their offer. Most even go to the extent of encouraging you to take more than we need. They often use unscrupulous methods to get people to sign their contracts, usually because they’re aware that they’re a last resort. Therefore, entering into any loan agreement should be done after very careful consideration.

Loan Sharks Have High-Interest Rates And Additional Fees

Moneylenders need interest – it’s how they generate revenue. However, loan sharks will either charge the maximum interest rate allowed by law or try to nickel and dime you with additional fees, i.e. application fees, processing fees & deposit fees.

They are Usually Not Legitimate

Before taking a loan from any moneylender, we must cross-check for legitimacy. Any genuine lender should be listed as having current authorization or dated licensing to lend money.

Furthermore, they must be licensed by the FCA, if they are not, they aren’t legitimate.

Always check on the ministry of law websites where licensed moneylenders are listed to confirm legality.

If you’re already involved with them unknowingly, do not be intimidated by their words. Report them if necessary or when they threaten with violence.

Remember, as they are not legitimate, they have no right to recover debts.

What Do I Do If I Have Borrowed From A Loan Shark?

If you have borrowed money from a loan shark you are under no legal obligation to repay the debt. If a lender isn’t licensed by the FCA then they have no legal right to recover the debt.

Loan sharks sometimes frighten people by saying they’ll be prosecuted and even sent to prison if they don’t pay up. This can’t happen – not repaying a loan from an unlicensed lender isn’t a criminal offense.

You should contact your local Trading Standards office immediately. It will help you deal with your situation and the loan shark.

Other Ways Of Borrowing Money

Instead of having yourself entangled with loan sharks, explore other sources of borrowing money:

If you need a loan, always go to a licensed lender. There are reputable lenders who’ll consider lending to you even if your income’s low, your credit rating’s poor or you only need a small amount for a short while.

You may still have to pay a high rate of interest but the Consumer Credit Act will cover your loan agreement.

Always shop around for credit though – just because a lender is licensed doesn’t necessarily mean you are getting a good deal.

If you’re on a low income and you need to borrow a small amount for a short time, look into borrowing from a credit union.

Credit unions encourage you to save what you can and only borrow what you can afford to pay back.

The most you’ll pay in interest is one percent a month, so interest on a $100 loan won’t be more than $1 a month.

Additionally, you can meet your HR department, to know if your employer has a lending scheme.

If they do, they might be able to offer a short-term loan or assistance. It could be in form of an advance on your wages or overtime.

Instead of going to loan sharks or even licensed lenders check out more ways of getting loans:

More Ways Of Borrowing Money

Loot to your utility provider, while their assistance may not out cash in your hands, it will help you save a little.

Many utility providers have schemes and grants in place for people who are struggling with gas or electric arrears.

You may even qualify for the Winter Fuel Payment scheme which can help you manage energy price rises in the colder months.

Also, consider asking the government for help. They could render help such as money to cover food and emergency costs.

The government website has information on how to get an advance on your first benefit payment. You can also get advice on your options from Jobcentre Plus.

However, if you’re already in debt to a licensed lender, the bulk of your worries should be how to pay it back. Explore these Brilliant ideas to pay off Debt faster than ever.

Pros Cons
Loan sharks give you easy access to loansThe loans come with high-interest rates
Loan sharks accept personal effects as securitiesThe accept persona effects as securities
They don’t care about your credit scoreLoan sharks offer you dubious contracts
They make loans available to you in a short period of time.Loan sharks would cajole you into taking more loans than you need


The issue with unlicensed lenders otherwise known as loan sharks isn’t with getting loans from them, rather, it is with what happens if you’re not able to pay them back.

While some people would readily go to any financial house for credit, it should be noted that not all financial institution has a permit or license to offer loans.

Therefore, you might find yourself entangled with a “licensed Loan Shark” when this happens, do not cower for they cannot bite.

Loan sharks are not empowered by the law, therefore, they cannot recover debts, for this to be possible you must follow the instructions we have given above.


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