When looking for loans money borrowers should be aware of loan sharks. Loan sharks are a bunch of unscrupulous money lenders who are constantly on the look out for vulnerable borrowers who are desperately looking for some source of money to help 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 assist them in extortion using either coercion or force.

The reason why the borrowers approach the loan shark is because their poor credit history, which is a major reasons of not getting the loan sanctioned from a legitimate sources. A poor 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. Any bank or certified lender would consider a borrower’s credit history as a reflection of his capability for repayment of a loan. These loan sharks take advantage of the borrower’s vulnerable situation 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 keep up the repayments. As a result, the borrower is forced to take a second loan from the same loan shark in order to clear off the first loan and this keeps continuing.

Payday loans are offered to people who have bad credit histories, with several savings bank and credit unions offering small 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 bad credit history. Such a lending practice is referred to as sub-prime lending which is usually done through cash transactions. The difference is that these lenders offer loans at a fixed interest rate and operate within the prescribed guidelines.

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. 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.