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Distinguishing Payday Lenders From Loan Sharks

Due to economic crisis, people turn to short-term loans in order to meet their financial obligations. With lower wages and high inflation rates, employees of companies face difficult times in shouldering their expenses. They may borrow from credit companies and other financial organizations, but these don’t lend to multiple borrowers. As a result, they turn to payday loans.

Payday loan lenders, however, have been criticized as thinly disguised loan sharks because of the high interest rates that they charge. But that is the only thing common between them. And in fact, loan sharks charge infinitely higher interests. But such comparisons put legitimate payday loan lenders at a disadvantage. This is why it is important for the average person to be able to distinguish a loan shark from a legal payday loan lender.

A loan shark may be a person or a group of persons who offer illegal loans at high interests and this is often supported by blackmail and violent threats. Loan sharks are usually associated with personalities with less than honorable reputations. Obviously, legitimate payday loan lenders do not get involve in blackmail or threats because this will take away their license and membership in respectable finance associations. In fact, the existence of payday loans has pushed loan sharks to turn to other pursuits. Payday loans are finance alternatives that are not exploitative like loan sharks.

Loan sharks and legitimate payday loan lenders conduct their business differently. Loan sharks or yamikinyu (Japanese term) demand between 30% to 50% in ten days. While payday loan lenders usually charge between 15% to 35% in fourteen days. If a borrower cannot pay the agreed amount on the agreed date, the legitimate payday loan lender offers the roll-over option to its client. Loan sharks, on the other hand, use threats and blackmail.

The collector of loan sharks may even take away an appliance, such as television of DVD player, in order to force the borrower to pay the “interest”. If the borrower is a young woman, the loan shark may even suggest that the woman sell her body instead. Once a loan shark has gotten hold of a victim, it does not let go easily.

If the victim has the money to pay all the amount he borrowed, the loan may become solicitous and suggest that perhaps the borrower still needs the money and he need not pay the full amount. This scheme assures the loan shark of collecting more interest. The legitimate payday loan lenders do not offer such agreements.