Don't become loan shark bait

Desperate times call for desperate measures, and more of us are turning to loan sharks in an attempt to get cash.

Imagine this: you've been turned down for credit in the past, and are finding it difficult to borrow money from today's credit-crunched high street banks. Suddenly, a lender you've never heard of before promises to lend you all the money you want, no matter what, with no need for credit checks.

Sounds familiar? If so, watch out. You may have unwittingly been offered money by a loan shark.

How to spot a loan shark

A loan shark is simply anyone who illegally lends money and doesn't have a licence from the Office of Fair Trading (OFT).

You can find out whether a lender is licensed by checking out the Consumer Credit Public Register which lists everyone and anyone with an OFT licence. It also lists anyone who has applied and been rejected for a licence or had one taken away. There's no fee to get basic information from the register -- such as trading names. To search it, you just need to call 020 7211 8608.

Loan sharks usually operate in similar ways. Typically, if you borrow money from a loan shark, you won't be given any paperwork, making it difficult to keep track of how much you owe. You'll also be charged a ridiculously high interest rate and the loan shark could add extra charges whenever he/she chooses -- for no real reason.

What's more, if you're struggling to pay up, loan sharks tend to resort to violence and threats as a way of ensuring they get their money. They may even pressurise you into borrowing more from them to help you repay the original debt.

Myths and legends

According to DirectGov, there are many rumours and myths about loan sharks and what they can do. But many of them simply aren't true. Here are three of them, courtesy of DirectGov.

Myth 1: If you borrow money from a loan shark, you're breaking the law.

Truth: The loan shark is the only person breaking the law -- you, the borrower, are not. You can't be prosecuted for having borrowed money from a loan shark.

Myth 2: You have to pay back what the loan shark says you owe.

Truth: Any loan made by someone without a licence is 'unenforceable' -- so you can't legally be made to pay it back.

Myth 3: Loan sharks are providing a reasonably priced service to the people who need it.

Truth: A loan from a loan shark is, on average, three times the cost of the same loan from someone operating legally. Interest rates of between 8,000% and 117,000% have been reported.

What to do if you're a victim

If you have borrowed money from a loan shark, you don't have to deal with it on your own. A national helpline was set up by the government last week for the victims of loan sharks which is completely confidential. Anyone affected can call the number 0300 555 2222 or text 'loan shark' and their message to 60003.

You can also contact your local Trading Standards office who will help you deal with your situation. However, if you have been threatened in any way or if the loan shark uses violence, you should also report it to the police. If anyone is harassing you, they are breaking the law -- you can read more on how to deal with harassment from creditors here. 

Seek help with your debt

If you're struggling with your finances and are in a lot of debt, facing up to it can be the hardest part. But there are many organisations to help and support you once you've broken through that barrier.

A great starting point for advice is our Dealing With Debt discussion board. Here you can discuss your problems and seek advice from fellow lovemoney.com readers -- some of whom will have been in a similar situation to you at some stage.

Alternatively, you can seek free and impartial advice from the National Debtline, the Consumer Credit Counselling Service (CCCS), or the Citizens Advice Bureau.

And if you'd like further debt advice, read Eight dealing with debt tips and How to be debt free by 2010.

The alternatives

If you really do need to borrow money and banks have turned you away, one option you could consider is Zopa. Zopa allows people to lend and borrow money to and from each other, sidestepping the banks. What's more, borrowing through Zopa measures up pretty well against loans available in the conventional market. You can read more about it here.

If you're on a low income, you could also consider a credit union. Credit unions are community-based, not-for-profit financial organisations which provide savings accounts and secured loans to people with a common bond -- this could be living in the same area or working for a particular employer. The members of a credit union pool their savings together and these savings then provide a pool of funds for loans.

Credit unions are regulated by the Financial Services Authority (FSA), and all funds are protected by the Financial Services Compensation Scheme (FSCS), just as it would be in a bank or building society. You can search here to find your nearest one.

So please don't think that turning to a loan shark is the solution to your borrowing and debt problems. There are so many other ways to solve your finance difficulties and it really is possible for you to take control again. And remember, you don't have to do it alone.

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