How to Avoid Loan Sharks

Doorstep Loans - High APR Lending for the Financially Vulnerable

Dec 16, 2008
Asa Ghaffar

Avoid Loan Sharks - myphotoreviewN

A loan shark offers financially vulnerable people and low-income families the chance to borrow money at a usury rate of interest.

A loan shark preys on the vulnerable. People who've been excluded by the financial system often turn to them for money, rarely considering the high rate of interest that they'll be paying. Usury-rate lending has made an unwelcome return due to the current credit crisis.

Predatorial lending came about as a direct result of financial exclusion. County Court Judgements (CCJs), statutory defaults and personal bankruptcy have made it very difficult for many people to obtain credit. When you're desperate, you'll do whatever it takes to get the money you need. Customers come from all walks of life. However, the most likely customers include illegal immigrants, compulsive gamblers, single parents, the unemployed and people with bad credit.

Ways to Avoid Loan Sharks

Don't buy items that you don't genuinely need. If something isn't affordable, either go without it or set aside some money each month until you're able to make the purchase.
Budget. Produce a breakdown of your income and expenditure, so it's easy to ascertain what's available to you for social and non-essential spending.
Save. Saving 5% of your social spending budget each month will provide a valuable sum of money in case you run into a financial emergency.
Consumer Credit Act 1974. Only borrow when an agreement is regulated by legislation.
Free debt advice. There's a number of free debt advisory services, such as the Citizens Advice Bureau, that will help you to deal with complex financial problems.
Debt Solutions. You may be able to clear unsecured debts at an affordable rate with a debt management plan. More serious levels of indebtedness can be resolved with an Individual Voluntary Arrangement (IVA) or by declaring personal bankruptcy.

The Consumer Credit Register is a searchable database of everyone that has an Office of Fair Trading (OFT) licence. Is your lender not listed? You can report unlicensed lenders to the Illegal Money Lending Team on 0300 555 2222 or texting "LOAN SHARK" to 60003.

Are Doorstep Lenders the New Loan Shark?

Door-to-door lenders are considered by critics to be new age of loan shark, charging in excess of 400% APR on cash advances for as little as £200. Peter Freeman, chairman of the Competition Commission said: "Customers value home credit because it suits their needs very well but the fact is that they are paying too much for it, because of the lack of competitive pressure in the market."

Although many consumer debt groups don't have a particularly favorable opinion of doorstep lenders, they are not in favour of a ban either. The fear is that an outright ban would drive the industry underground which would only serve to exacerbate the problem. There are many genuine providers of extremely bad credit loans that are regulated by law, and doorstep lenders fall into this category.

Usury interest lending is a problem that afflicts the most vulnerable social groups. If financial difficulties are a problem, seek assistance from a qualified debt counsellor as they are best placed to help you to find a workable solution. Don't borrow money that you clearly can't afford to repay as it'll only serve to exacerbate the problem. If you do need a loan, make sure that they're FSA regulated.