Loan sharks are a bunch of unscrupulous money lenders who are constantly on the glimpse out for vulnerable borrowers who are desperately looking for some source of money to wait on them out in their time of financial crisis. They are illegal, unlicensed money lenders who offer unsecured loans at very high interest rates to individuals who are is urgent need of money. Such loan sharks often operate closely with organized crime networks that relieve them in extortion using either coercion or force.
The principal reason why the borrowers are compelled to advance a loan shark is their abominable credit history, which is a major hindrance in the sanction of their loan application from legitimate sources. Any bank or certified lender would contemplate a borrower’s credit history as a reflection of his capability for repayment of a loan. A bad credit history means no loan approval from banks and credit unions, in which case, the borrower approaches a loan shark to borrow money at an unreasonably high interest rate. These loan sharks capture advantage of the borrower’s vulnerable dwelling and many times even resort to unscrupulous practice of deceiving the unsuspecting borrowers with undisclosed costly additions along with the loan which makes it difficult for the borrower to retain up the repayments. As a result, the borrower is forced to capture a second loan from the same loan shark in order to definite off the first loan and this keeps continuing.
But now, there is a bit of relief for people with dreadful credit histories, with several savings bank and credit unions offering microscopic loans at affordable interest rates, such as the payday loans. There are also many registered and legitimate money lenders who offer loans to borrowers with awful credit history. The dissimilarity is that these lenders offer loans at a fixed interest rate and operate within the prescribed guidelines. Such a lending practice is referred to as sub-prime lending which is usually done through cash transactions.
Although loan sharking was highly practiced during the19th century, but after the regularization of loan approval system, the U.S government has been able to successfully curb this menace. As a result, today there are many laws functioning, which regulate the interest rates on loans and any lender who violates these laws is heavily penalized.