There’s the legal way of doing things and then there’s the “fishy” way of doing things.

Loan sharks are in no way or form to ever be considered as an above board means of obtaining a loan.

Sure, it’s a reality that in South Africa we live with a struggling economy where life and its expenses have far surpassed the rate of inflation. All the more reason we have to act cautiously when we take on the act of borrowing money.

The retrenchment phase has yet to come to a halt and that means that people are losing their jobs more often, fuel costs are through the roof and annual increases at some companies are unheard of! The struggle is real and lending firms and banks have their hands full when it comes to loan applications. Lines of credit are a common means to an end with households in this country and the debt is just climbing as you read this.

The National Credit Regulator brought about the Credit Act to try and slow down the rise of debt through irresponsible lending. Even though this is a pain for those who are struggling, the concept is sound. It’s there to protect us from becoming over-indebted – a situation that none of us can literally afford to land in. This doesn’t make it any less frustrating when you need money desperately and the only way to resolve your current issue is through a loan. If you think you’re the only one getting turned away, you’re not. What happens when there is a need or demand for anything in society? The entrepreneurs are waiting in the wings to become the suppliers! And so the “loan shark” was born.

The teeth of a loan shark

Don’t be fooled into believing that there are strict terms and conditions where loan sharks are concerned. They are not legally allowed to lend you money with any rate of interest. They are also not in a position to guide you on how much you are allowed to lend and the length of period that you have to repay the loan. Quite simply, they have no authority whatsoever to give you cash in exchange for repayments over a period of time where either of you has a leg to stand on if the arrangement goes south.

Loan sharks lurk through the waters of society and prey on those that are deep in the waters of debt.  The wellbeing of the borrower is not taken into consideration when the loan arrangement is made, however the pro is that no credit checks are done to delay or turn away the borrower either. 

The problem with this win-win deal is that the customer eventually does lose because they are digging holes that are potentially too deep to climb their way out of. With no credit checks and high-risk loans as offered by loan sharks, the interest rates are so high, making repayments extremely difficult to repay. I’m sure by now you can decipher where the real problem exists. These clients of loan sharks end up being tied in for life. The interest is the only thing you can afford to repay which means the capital never goes down and reaching an end date to your loan settlement is virtually impossible.

What happens when I can’t afford my loan repayment?

Now this is when things tend to get a little unpleasant. Unlike banks that call and address the legalities pertaining to defaulting on a payment, a loan shark goes aggressive way and has been known to bully their debtors into collecting the money. It’s not uncommon for a loan shark to take possession of a clients’ ID book or something else of relevance in their daily lives just to ensure that they have you by the short and curlies. It’s important that you understand that this ransom style of money lending is in no way legal at all.

Do you have a fear of sharks yet? If not, this might get you there – certain loan sharks will charge VAT on your loan total, simply preying on your ignorance, because they aren’t even registered for VAT.

Step right up for irresponsible lending

It is the responsibility of the lender to ensure that the consumer can afford the loan. If, for any reason they can’t, then the loan will not be granted and for very good reason. It affects both the bank, and the client. Loan sharks perform no credit checks at all, nor are they concerned with whether you can repay it or not, in fact they are hoping you can’t. They don’t follow any micro-lending rules and this exposes you to further debt.

If you need to borrow money and instead are turned away from a bank, it’s understandable that you might have a loan shark as your only resource. The only bit of advice that you should heed, is to get educated on the process. Understand what you’re getting into and if after all the nasties have been exposed you are still willing to take the risk, then at least you are prepared for any situation.