Loan with Loan shark: what is it and what are the consequences?

Many people who urgently need money end up considering taking out loans from loan sharks. However, while it may seem advantageous at first, there are several issues and precautions you should be aware of.

Do you want to know who a loan shark is and why you should avoid taking out loans from them? Then you've come to the right place. Here you'll find all the answers to your questions about loan sharking and much more.

Stay tuned to the end and get all the answers you need about loan sharks.

How does a loan with a loan shark work?

To begin, we need to understand what this figure represents. A loan shark is someone who lends money to another person outside of the law.

In other words, every financial institution needs Central Bank regulation to be able to issue loans, regardless of their type. Authorization and a series of legal requirements must be met before the company can offer credit, including rates, terms, and many other requirements.

Loan sharks offer credit without following the regulations established for financial institutions. In other words, they don't follow the Central Bank's rules and aren't authorized to do so. In general, obtaining the money is less bureaucratic, as all you have to do is apply and it will be approved.

What amounts are possible to borrow from a loan shark?

When applying for a loan at a financial institution, you must prove your income. A credit check is performed, and then a specific amount may or may not be released to the person in need. In other words, a credit check is performed to ensure the transaction is beneficial to everyone.

In the case of a loan from a loan shark, this process doesn't occur. Since the loan shark doesn't have to follow legal regulations, they can borrow whatever amount they want. In other words, there's no maximum loan amount allowed.

Typically, the loan shark offers the amount the person needs and charges extreme interest rates depending on the person's financial needs. Thus, even if the person manages to obtain the money they need, upon repayment, they will be in a massive debt.

What is a loan shark's interest rate?

There is no standard or regulated interest rate for loans from loan sharks, as this practice is illegal. Loan sharks generally charge extremely high interest rates and can vary depending on several factors, such as the loan amount, the urgency of the need for the money, the borrower's profile, and others.

With regulated financial institutions, interest rates are set according to Central Bank rules and may vary depending on the type of loan, the financial institution, and the applicant's credit profile.

However, the interest rates offered by legal financial institutions are often fairer and more transparent than those offered by loan sharks. This is because financial institutions are monitored and have interest rate limits, in addition to other regulations aimed at protecting consumers.

Why do people take out loans from loan sharks?

People usually resort to loans from loan sharks when they are facing financial difficulties and need money urgently.

This can happen for a variety of reasons, such as job loss, a medical emergency, the need to pay off accumulated debt, and more.

Some people may also choose to take out loans from loan sharks because they are unable to obtain credit from regulated financial institutions, either because they have credit restrictions, cannot prove sufficient income, or face other difficulties related to the bureaucracy of the credit analysis process.

What are the risks of taking out a loan from a loan shark?

Before taking out a loan with a loan shark, you need to be aware of all the potential pitfalls you might face. Learn about the risks involved in taking out this type of loan.

Loans from loan sharks are a crime

Taking out loans from loan sharks is considered a crime for two fundamental reasons. First, this type of practice is characterized as a crime against the popular economy, according to Article 4 of Law 1521/1051.

Secondly, lending money without proper authorization from the National Central Bank is considered an infraction against the National Financial System, and can result in a sentence of 2 to 8 years in prison, in addition to the payment of fines, as provided for in Article 7 of Law 7,492/86.

The interest paid will be very high!

The interest rates charged by loan sharks are extremely high, averaging 40% per month. In comparison, interest rates on loans offered by banks and other legal financial institutions are often significantly lower, typically below 10% per month.

This stark difference in interest charges is primarily due to the fact that loan sharks operate outside the law, without any oversight or control. Regulated financial institutions, on the other hand, must follow the rules of the Central Bank and other regulatory bodies, which set limits on interest rates and other loan conditions.

They demand guarantees that are abusive

Loan sharks often demand abusive collateral, such as personal property, to secure loan repayment. This collateral can include jewelry, vehicles, real estate, and other valuable assets.

The main consequence of this type of practice is that, in the event of default, the loan shark can take possession of the assets given as collateral, often without any prior notice or legal process.

Loans with loan sharks have no rules

One of the main characteristics of loan sharks is the lack of a contract or regulation establishing the terms of the transaction. This means that loan sharks have complete freedom to define the loan terms, without having to follow any rules or regulations.

This lack of rules and transparency in the relationship between creditor and debtor can lead to numerous problems, such as excessive interest rates, abusive guarantees, and even threats and violence in the event of default. Furthermore, without a contract that clearly establishes each party's obligations, it becomes more difficult for the debtor to defend themselves in the event of problems or disputes.

Illegal money

Money lent by loan sharks may be of illicit origin, coming from illegal activities such as theft, corruption or money laundering.

Therefore, by accepting a loan from a loan shark, one may be indirectly involved in criminal practices and face serious legal consequences. It's important to remember that legal financial institutions are required to follow regulations and laws to ensure the legitimate origin of the loaned funds.

Debt collection with violence

Remember that loan sharks do not act according to the law. This is why loan collections from loan sharks are often accompanied by threats and violence. It's common to hear stories of loan sharks using aggressive methods to pressure customers into paying their debts, such as threats of physical assault or damage to the debtor's property.

These practices are illegal and can endanger the physical and psychological well-being of those involved, as well as lead to criminal consequences for the loan shark. It's important to remember that by resorting to loans from loan sharks, you're exposing yourself to unnecessary risks and should always seek legal and safe options for obtaining credit.

Is it worth taking out a loan from a loan shark?

As we have shown since the beginning of this article, loan sharks are considered illegal in Brazil, mainly because loan sharks do not have regulations to operate and, therefore, cannot be performing this function.

Although many people find it attractive due to the lack of bureaucracy and the fact that it seems like the right solution in times of distress, resorting to a loan from a loan shark exposes you and your family to unnecessary risks. You'll have a much larger debt to collect, may face violence, and may even have problems for the rest of your life.

Therefore, our position is that no, it's not worth taking out a loan from a loan shark. If you need money, there are several alternatives and legal financial institutions that can get you what you need safely and legally.

It's much better to turn to these institutions, as you have all the legal guarantees in case of problems with your loan.

Frequently asked questions

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