Loan Shark

Definition

A loan shark is a person or entity that offers loans at extremely high interest rates, often under illegal conditions. They typically use threats of violence or other intimidating tactics to enforce repayment. They are well-known for preying on desperate individuals who cannot obtain loans through legitimate channels.

Phonetic

The phonetic pronunciation of “Loan Shark” is : /loʊn ʃɑːrk/

Key Takeaways

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1. A loan shark is an unregulated lender who typically charges extraordinarily high interest rates. This is considered illegal in many places due to the interest rates they charge and their unfair lending practices.
2. Loan sharks often use threats and aggression when individuals are unable to pay back the loan in the given time, this makes borrowing from them dangerous and risky.
3. Borrowing from a loan shark can lead to a cycle of debt, where the debtor is unable to repay the principal loan amount due to the rapidly accumulating interest.

“`Once rendered, it becomes:1. A loan shark is an unregulated lender who typically charges extraordinarily high interest rates. This is considered illegal in many places due to the interest rates they charge and their unfair lending practices.2. Loan sharks often use threats and aggression when individuals are unable to pay back the loan in the given time, this makes borrowing from them dangerous and risky.3. Borrowing from a loan shark can lead to a cycle of debt, where the debtor is unable to repay the principal loan amount due to the rapidly accumulating interest.

Importance

The term “Loan Shark” carries significant importance in the business/finance world as it refers to an individual or organization that lends money at exceptionally high interest rates and employs unethical, often illegal means of debt collection. Understanding this term is vital as engaging in any financial transaction with a loan shark can lead to severe financial hardships due to the incredibly high interest rates and harsh repayment terms they implement. It’s also crucial to comprehend this term to identify and avoid such predatory lending practices, and instead, opt for legitimate, regulated financial institutions for borrowing needs. This knowledge, therefore, acts as a proactive measure in maintaining one’s financial health and avoiding potential exploitation.

Explanation

A loan shark is typically an individual or an entity that offers loans at extremely high interest rates. This type of lender is often considered illegal or predatory due to their unfair lending practices. However, despite the potential risk and the high cost, many individuals turn to loan sharks out of desperation, typically because they are unable to secure loans from traditional financial institutions due to poor credit or lack of collateral.The main purpose of a loan shark is to provide funds to those who have exhausted other avenues of getting credit. Borrowers who fall into the hands of loan sharks are often those who are facing financial crisis or those in urgent need of money for emergencies. Although the loans provided by these loan sharks come at a substantial cost, they serve a market demand for short term and potentially large, unsecured loans. Oftentimes, these loans are used to cover immediate expenses, such as medical emergencies or unexpected bills. Despite the high interest rates, loan sharks can be attractive because they offer quick loan approval and flexible lending criteria as compared to traditional lending institutions.

Examples

1. Payday Loan Businesses: Certain payday loan companies have been referred to as legal loan sharks. These companies sometimes charge exorbitantly high interest rates for short-term loans, preying on people in desperate financial situations.2. Organized Crime: Historically, organized crime syndicates such as the Mafia have engaged in loan sharking. They lend money at extremely high interest rates to individuals who cannot get loans from traditional financial institutions, often using threats and violence to collect their debts.3. Informal Moneylenders: In many developing countries, local moneylenders operate outside of the regulations that govern formal banking systems, often charging excessive interest rates. This practice is particularly prevalent in rural areas, where access to traditional banking services is limited.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Usury
• High-Interest Rate
• Illegal Lending
• Debt Trap
• Intimidation and Extortion

Sources for More Information

• Investopedia
• Business Dictionary
• Debt.org
• Federal Trade Commission Consumer Information