What is a loan with a loan shark and its risks?

Emergencies happen, and sometimes, just when we're broke. At these times, many people become desperate and end up resorting to risky alternatives to escape the suffocation, such as loan with loan shark.

But after all, what is a loan shark?

A loan shark is someone who offers loans without a legal entity. They don't follow the lending rules imposed on financial institutions. Therefore, they are committing a crime.

Because it is illegal, loan sharks make tempting offers, such as quick cash without the need for proof of income, documents, or a legal contract.

However, these benefits come at the cost of a series of unforeseen events that may occur to the applicant. After all, there are no rules, guarantees, or security measures.

Loan sharks often target people who are struggling and urgently need a certain amount of money. Because many of them are in default, they can't access traditional banks, as most banks won't grant loans to those with bad credit.

How does a loan with a loan shark work?

Although widespread throughout the country, loan sharking is a practice that government agencies are trying to combat for two reasons. One, as mentioned above, is that it is considered a criminal practice.

The second is related to the security of the citizen who requests the loan, given that there are many suspicions regarding even the origin of the money.

Loans from loan sharks are still very popular due to the lack of bureaucracy, as we mentioned earlier.

Thus, people in debt who do not see a short-term solution to the financial situation they are experiencing, end up giving in to the temptation of the loan shark.

Temptation, popularly, consists of very well-explained steps:

THE loan shark approaches or is approached by an individual who needs quick and easy money;
The negotiation is completed, and the loan shark sets the interest rate on the loan, which can vary according to their interests, as well as the monthly interest charge.

Let's use an example to make it clearer. Imagine a person borrows R$1,000 from a loan shark. If the interest is R$101,000 per month, until the debt is repaid, the debt will go from R$1,000 to R$1,100 in 30 days, to R$1,210 in the second month, and so on.

Therefore, even though there is relief related to the previous debt almost immediately, the person who requested the loan may have problems paying off the new debt and have an even bigger headache.

Risks of taking out a loan from a loan shark

Let's talk again about the abusive interest rates. If you think overdraft interest rates are high, you haven't yet learned how loan sharks work.

However, this isn't the only problem that resorting to loan sharks can bring. Check it out.

Illegal practice

Loan sharking is illegal in the country, as people illicitly enrich themselves at the expense of others — and the interest charged is often higher than what is permitted by law.

Loan sharking is seen as a crime targeting the popular economy, with criminals facing a prison sentence of between six months and two years.

These transactions are not recognized by the Central Bank, thus violating the Brazilian Financial System's authorized practices. This violation carries a penalty of imprisonment ranging from two to eight years, in addition to a fine.

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Previously, we gave the example of monthly interest of 10% on the requested amount, but how much would this debt be if the loan shark charged an even higher amount? Let's use the example of interest of 40% on the amount.

In just one month, considering a loan from a loan shark worth R$1,000, this debt would jump to R$1,400.

Even though loans from traditional banking institutions have high interest rates, such as overdrafts, they are provided for by law and are no match for those offered by loan sharks.

Absence of rules and guarantees

Since it's an illegal practice, what guarantees or security does the applicant have when taking out a loan with a loan shark? None. Yes, none.

There is no legal contract for the activity, much less regulations or bodies to appeal to.

A person in debt who is already in a financial dilemma may have their physical health potentially affected due to the relationship between health and stress.

Wworks:

One of the biggest risks of applying for a loan from a loan shark is late payment.

Defaulting on loans is not only seen as a financial problem, but also as a major concern for the physical integrity of the person who requested the loan.

After all, loan sharks generally use extortion methods that can lead people to commit crazy acts and crimes, just to pay off the debt, as they begin to fear for their own physical safety and that of their family.

Because, in many cases, if the defaulter does not pay the debt, the loan shark may force his family to pay.

Because it is a criminal practice, there is no way to appeal to public bodies, not even the police, which makes it even more difficult to resolve the problem.

WHow can I pay off my debts without having to resort to a loan from a loan shark?

There are different ways to obtain credit easily, safely and legally.

Although they involve more bureaucracy and restrictive conditions, unlike loan sharks, they are much safer solutions for getting out of debt.

We've put together some possibilities that can help you avoid debt:

Online personal loan, an easy, fast and simple form of loan;
Consigned loan, where the credit installments are debited gradually, directly from the employee's payroll or social security benefit;
Secured loans, which usually have a lower interest rate.

If none of these options are feasible, review your accounts and cut expenses. In some cases, you may need to sell some assets to help.

And if that's still not enough, try to earn some extra income.

Most importantly, protect yourself. Some decisions aren't worth the risk. In times of crisis, reevaluate your actions.