Do you hear that? The theme song of Jaws… da-dum-da-dum-da-dum. Sound the alarm! We’ve spotted a loan shark.
Who are they and what do they look like?
Loan sharks usually offer tempting long-term repayment options, with a heartfelt promise to ease your financial misfortunes. But in return, you have to pay a somewhat hefty sum upfront for the loan arrangements to commence, they call it “activating” or “initiating fees”. They prey on people stuck in financial difficulty by placing numerous ads online in search of potential victims. If you contact them, you’ll be told that getting a loan is no problem, but this is where they corner their victims that are now oh-so-happy and relieved to get a loan. Unsuspecting South African borrowers have poured out thousands of Rands for these ‘loans’ only to find the money never materialises. Loan sharks can be divided into 2 main categories - legal lenders and illegal lenders.
Let’s take a closer look.
Pay Day lenders.
The National Credit Act puts a cap on the interest Pay Day lenders can charge, this is set at 5%, and caps the time period for repayment. By adhering to the requirements of the NCR, payday loans are perfectly legal. But by enabling entry into a debt spiral, which is arguably based on exploiting the lack of financial literacy of users regarding the long-term effects of such loans, the ethics of the current system of payday loans are questionable. While Pay Day lending is regulated in terms of the maximum amount (usually R8000) and the interest rates charged and service fees levied, an assessment of whether a loan is affordable to the consumer is not included - no credit check. So, those unfit to get a loan, usually end up with a short-term high-interest loan with no way to repay.
Pawn shops can offer secured loans to individuals by using their valuable personal possessions as collateral. If the loan defaults, the pawnbroker has the right to keep the possession and sell it. Defaults are not even reported, so you credit score stays untouched. The interest rates are very high, and you risk losing your possessions. This is not an attractive option.
Car title loans.
Similar to pawn loans, you use your car as collateral. Once you’ve signed on the dotted line, you hand over your keys and the title of your car. The loan often comes with many hidden costs such as storage and repossession fees. Risking losing your car for a quick cash loan is not a very smart move.
The bandits. Although they have no formal right to lend money with interest to individuals, they impose excessive interest rates to borrowers in desperate situations. They are known to often use violence and blackmail to get their victims to pay. These are the most dangerous sharks in the sea, with the absence of legal boundaries, not only your credit score is at risk.
Never make a hasty decision and trust any online lender when you’re looking for a quick loan. Always look for formal accreditation on the NCR website. You can rely on Fincheck to help you make the right decision with a trusted lender.