People take loans because of lack of cash flow. Of course, needs usually cause the need for the cash flow. Needs such as; payment of medical bills, school fees, groceries, vacation, etc. A lot of borrowers fall prey to loan sharks in South Africa. These loan sharks in South Africa target the most vulnerable of borrowers. Who loan sharks are, how to check legitimate lenders, etc are all-inclusive in this article.
Who are loan sharks?
Loan sharks are lenders of loans who do not have a license number. They are not legal lenders of loans. They lend their loans with enormous interest rates. Loan sharks lend enormous amounts of loan intending to gain a prime interest in a short time. Most times they target low-income and desperate families who do not have money to fend for their needs. It is never a good idea to borrow from them, no matter how friendly they might seem.
Sometimes, authorities see loans like payday loans or title loans that attract high interest rates as loan sharking.
Major characteristics of Loan sharks
Loan sharks do not adhere to the microlending rules, so they should not be taken lightly. If you are unsure of the lending criteria, take note of the following when you submit an application:
- The maximum amount of the loan is R10,000
- Loans should be paid back within 36 months
- Payment cannot be paid back using other forms of credit
- The business must be registered with MicroFinance South Africa.
How do I find loan sharks
They can be found in underbanked neighborhoods, online, or through personal networks. Often, their funds come from unidentified sources, and they work for personal businesses or unregistered entities. A loan shark does not require a credit check or background check.
How to identify a loan shark
Identifying a loan shark is very important before venturing into any form of loan. This enables you not to be a victim of their exploitations.
- They usually offer little or no paperwork, such as a credit agreement or record of payments
- Most times they refuse to give information, such as the interest rate or how much you owe
- They take items as security for the loans they give you like; passports, bank cards or driving licences
- There’s an increase in your loan or add additional charges to your loan
- Usually they refuse to allow you to settle your debt
- Most times they might resort to intimidating, threatening and blackmailing their victims
- They offer you a loan without assessing your current income
- Their business does not have a legal domain or address
- Such lender does not own a license number
- They charge interest rates far above regular rate
How can I identify a legitimate lender?
Legitimate lenders are the lenders who comply with the National Credit Act (NCA) of South Africa. They have their registration numbers, which authentically approves their operation in South Africa. There are things you must do to identify legitimate lenders.
The following are how you can identify legitimate lenders:
- Know if they comply with the regulations of the National Credit Act (NCA) of South Africa
- If they did not list the lender as having a current authorisation to lend money
- Check for their contact information. You should have their phone numbers, email addresses and physical addresses. All the details above should be readily available on their website, even if it’s a lender that operates only online
- Look out for online reviews about their loans
- Know if they registered the lender
Risks of borrowing from loan sharks
There are many risks that borrowing from a loan shark attracts. You can avoid these risks by sourcing for a loan from notable financial institutions.
The risks of borrowing from loan sharks are:
- The interest rates you pay are way higher than the one you would through any legal borrowing
- They might harass, intimidate, attack or threaten you if you get behind with your repayments
- Sometimes they might pressure you to borrow more money to repay one loan with another. This definitely puts their victims into a spiral of debt that they can never repay.
Loan sharks in South Africa versus the law
Any form of harassment, be it from a lender, is against the law. They usually harass their victims, especially the vulnerable ones. Any loan from an illegal lender is automatically an illegal loan. Therefore, the loan shark doesn’t have any legal right to recover the debt. Most times, they threaten their victims with court prosecution and imprisonment if you cannot pay back the loan. But this is not possible because the loan from the lender (loan shark) is an illegal loan.
Can loan sharks kill their victims?
Accordingly, loan sharks are referred to as ‘Loan Sharks’ since they are like sharks. They are angry, aggressive and greedy. Besides that, to get their enormous interest rates and loan repayment, they can do many illegal things. These illegal things could be the kidnapping or even killing of their victims.
How can I cut ties with a loan shark?
Unfortunately, sometimes borrowers find out they are in the wrong hands (loan sharks). There are things you can do to cut off the ties you have with a loan shark.
The following are what you can do to cut ties with a loan shark:
- Get a financial advisor’s advice
- Ensure that the lender is actually an illegal lender
- Do not show the loan sharks that you know about their plans to victimise you
- Report such loan shark to the authority
- Report any pressure and threats
- Stop making further payments
Is borrowing from a loan shark illegal?
Loan sharks operate illegally. This is because it is illegal to lend money without a licence. But it is not illegal to borrow money from a loan shark. The loan shark would not have any legal right to take you to court if you cannot pay back the loan. This could be the reason they resort to violence, blackmail or threats to make their victims pay them back.
Things while dealing with loan sharks
It is important to educate yourself. Understand that legal institutions are legal for a reason, and the same is true for illegal lenders. Knowing the notorious facts around loan sharks is important if you plan to get involved with one. Think twice before you sign anything and always choose the safest option for you and your family. If you’re ready to go the legal route, here are a few tips:
Know what you’re getting into!
- If you want an estimate for the total amount of the debt, including repayments, get a quote first
- Disclose honest information where figures are concerned
- Leave greed at the door, only borrow what you need
- If you pay as much as you can over a shorter period rather than over the longest period, you will save a great deal on your total repayment
- Applications for credit insurance, that way you’re covered!
- Create a reasonable budget with all expenses considered, how much can you afford?
- Know your credit score, if not request it for free from Experian.
Other Ways of Borrowing Money
Always go to a licensed lender if you need a loan. You will still be able to find credible lenders who are willing to lend to you no matter how low your income is, how bad your credit rating is, or whether you only need a small sum for a short time. Although your loan agreement will still cover you under the Consumer Credit Act, you will still have to pay a high rate of interest.
Licensing doesn’t guarantee you will get a good deal just because the lender is licensed.
A credit union can provide you with short-term loans for a small amount if you have a limited income. It is advised that credit unions encourage members to save money and borrow only what they can afford to repay.
No matter the financial need you have. Always remember that there are other options of loans you can explore in South Africa. Ensure you avoid any form of illegal loans from loan sharks. Notwithstanding that the loan sharks will offer you the enormous amount of money you need. You must prioritise legal choices of loans over the ones from loan sharks.