A loan shark is anyone who lends money and is not authorised by the Financial Conduct Authority (FCA) to do so. Very often, loan sharks target vulnerable people or families who may be desperate for cash and who cannot get credit anywhere else.
Loan sharks can use violence or other forms of intimidation – especially if you fall behind in your repayments.
Often, the rates that they charge for lending are extremely high – forcing people to repay huge sums of money, even if the amount they borrowed was small.
Make no mistake: Loan sharks are criminals. You should never borrow from them under any circumstances. If you are already in debt to a loan shark, then see the What to do if you owe money to a loan shark or other illegal lender section below.
There is no law against borrowing money informally from friends or relations. These are not required to be regulated by the FCA. This might include things like borrowing some money from your parents to buy your first car or to tide you over until payday.
If you have borrowed more than you can repay in one payment, then you may have an informal agreement with your friend or family member to pay them back so much per week or month, until the debt is settled.
However, even with informal loans, the person you owe money to cannot do anything illegal to collect the money owed. For example, they are not allowed to threaten you, use violence or take any goods you own as security or as payment.
They can however pursue repayment through legitimate legal means, such as taking you to court.
There are several ways you can spot loan sharks or other illegal lenders:
The golden rule is: Don’t borrow money from any individual or company that is not authorised by the FCA to lend money or provide credit. Check with the FCA if you are in any doubt whatsoever.
Loan sharks will use intimidation, threats and even violence to get money from you. You could end up repaying £1,000s on even a small debt with no idea when or if you’ll be allowed to stop paying.
In addition, loan sharks may be involved in other illegal activities that your repayments could be used to fund.
Loan sharks are illegal lenders and have no legal right to chase you for repayments.
Some loan sharks try to frighten people into believing that they will go to jail for borrowing money illegally. This is not true.
Although it is illegal to lend money without a licence, it is not illegal to borrow money from a loan shark. You have done nothing wrong and you will not be arrested, prosecuted or sent to prison.
If you think you may be a victim of a loan shark and live in England, then you can contact the Illegal Money Lending Hotline on 0300 555 2222. You can also email them at firstname.lastname@example.org or text the words loan shark and your message to 60003.
If you live in Scotland, you should call the National Trading Standards Scotland team on 0800 074 0878 or report it online at www.tsscot.co.uk.
If you live in Wales, then call the Wales Illegal Money Lending Unit on 0300 123 33 11.
In Northern Ireland, contact the Trading Standards Consumer line, on 0300 123 6262.
All of the above will be able to help you with your next steps. If you want further information or advice, then visit the Government’s official loan shark website at: https://www.moneyadviceservice.org.uk/en/articles/how-to-spot-a-loan-shark or get in touch with your nearest Citizens Advice.
Innocent people very often end up in the clutches of illegal loan sharks because they don’t think they can get credit or a loan anywhere else. However, there are many organisations and financial services providers who can help – even if you have a poor credit score.
Many people assume that because they have a poor credit rating, they will not be able to get finance from legitimate sources. However, there are professional, licensed lenders who specialise in helping those with a low credit score. There are even credit cards available that are designed to help you rebuild your credit score.
Steer clear of ‘payday’ loan providers. Although they are licensed, they tend to charge very high interest rates and borrowing with them can rapidly get out of control. For more info, see our Guide to payday loans.
Credit unions are community-based organisations run by members for their members. Each credit union offers a different range of products, but most offer loans and savings accounts, and some offer prepaid cards and current accounts. Credit unions usually offer lower value loans of a few hundred pounds for more competitive rates than doorstep and payday lenders. Credit unions are not-for-profit and are formed by people who have something in common. This 'common bond' could be living or working in a geographical area, being part of a specific industry (or job), working for a specific employer or belonging to a trade union, club or church. See our guide on What are credit unions? for more information.
If you are threatened or attacked by anyone to whom you owe money, then you should contact the police straight away.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.