A loan shark is a type of predatory lending in which the lender charges very high-interest rates because the borrower lacks the financial resources and/or credit history to obtain traditional financing. The term “shark” refers to those who prey on victims with these characteristics. This strategy often results in defaulted loans, but lenders can profit even if borrowers default.
1. Why do people need a loan shark?
People may need a loan shark when they do not have the credit history to receive traditional financing or do not earn enough money to qualify for traditional financing. They may be desperate because their car has broken down and they need transportation to work, or they may want to purchase something of high value that is needed immediately.
2. Advantages of having a shark loan?
Having a shark loan can be advantageous because it may provide the means to secure needed financing in an expedient manner. For example, a borrower with a little credit history or income could obtain a personal loan from a shark lender quickly, while traditional lenders may take weeks to approve the application and funds could still be denied even if submitted far in advance of the desired funding.
3. Who is affected by the loan sharks?
Loans shark affect low-income individuals or those with bad credit, who do not have access to traditional financing. Shark loans are often used in emergencies when the borrower lacks other options and requires funds quickly. This can result in predatory practices which are unfavorable to the borrower.
4. How are loan sharks different from payday loans?
Payday loans are money advance services offered by retail stores specifically to low-income individuals for short-term credit. They often charge high-interest rates and require repayment within two weeks, but many allow borrowers to renew the loan until it is paid off. There are many payday loan companies, which increases competition and ensures that borrowers have more options from which to choose.
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