How to spot and avoid loan sharks

With high living costs, making ends meet has become increasingly difficult for many households in recent years. Unfortunately, unlicenced lenders, also known as loan sharks, can take advantage of this by offering loans at high interest rates to people who may feel they don’t have many other options. Research indicates that over a million people in the UK could be using loan sharks to borrow money, which carries lots of risks and often results in a cycle of debt that is really hard to get out of. Many of the people borrowing from loan sharks might not even realise that this is what they are, and may not be aware of other alternatives available to them.

This guide looks at how to spot some of the common signs of a loan shark and how to avoid them, as well as what to do if you’ve borrowed money from an unlicensed lender. 

Jump to:
What are loan sharks?
Are loan sharks illegal?
Are family or friend loans illegal?
Why avoid loan sharks?
Spotting loan sharks
How to find out if a lender is legitimate
How to solve loan shark problems
Alternatives to using loan sharks

What are loan sharks?

Loan sharks are people or groups who loan money to others at very high interest rates and there are often other fees applied to the loan too. They are unregulated lenders and can be difficult to spot, as they often use friendships or build trust with those they lend to, so they aren’t always easily recognised as loan sharks.

Loan sharks tend to target people who are on a low income or can’t borrow from regulated lenders for other reasons, so their options to borrow money are limited.

Loan sharks often lend money informally, with no written credit agreement, so it can be impossible for the person who borrowed the money to know things like the interest or fees they are being charged or how many repayments they should make before the debt has been repaid. 

Are loan sharks illegal?

Loan sharks are illegal. This is because lending money to people without being authorised to do so by the Financial Conduct Authority (FCA) is against the law in the UK. Lenders that operate within the law need to have a consumer credit license, which loan sharks will not have.

Not only is it illegal for loan sharks to lend people money, they also often use illegal methods when it comes to getting repayments too, such as harassing, threatening or even being violent towards the person they lent to or their loved ones, along with adding on fees or requiring payments long after the original sum borrowed has been repaid. 

Loan sharks can be charged with a criminal offence for lending money without authorisation, which can mean a large fine or a prison sentence if they are found guilty.

If you have borrowed money from a loan shark, you haven’t broken the law. 

Are family or friend loans illegal?

Borrowing money from a family member or friend informally is common and usually not considered illegal moneylending. However, sometimes loan sharks can use friendship as a way to target people, so it’s important that you ask yourself these questions about the borrowing:

• Has there been pressure to borrow money that you can’t afford to repay?
• Is the family member or friend adding interest or fees to the sum you originally borrowed?
• Is the debt that you owe getting larger without you borrowing any more money from them?

If the answer to any of these questions is ‘Yes’, it’s possible that your family member or friend is acting outside of the law. 

Why avoid loan sharks?

Borrowing from loan sharks is very risky and expensive. Some of the main issues can include:

• Paying much more interest than you would if you borrowed from a legal lender
• Being pressured into borrowing more money to repay a previous loan with a new one, which can easily spiral into even more debt 
• Being threatened, harassed or experiencing violence if you can’t make repayments on time
• Being charged extra fees for things that a legal lender wouldn’t be able to charge for
• Having possessions or documents taken by the loan shark to try and ensure you pay e.g. passport, bank cards, valuables. 

These are just some of the many risks involved if you borrow from a loan shark.

Spotting loan sharks

It can often be very difficult to spot a loan shark because illegal moneylenders are sometimes people that you wouldn’t necessarily suspect. It could be a colleague, a casual acquaintance, someone you’ve met online, a friend of a friend, someone living in your community or even an employer offering loans to staff under some circumstances or a car dealer offering finance when they are not authorised to do so. Not all loan sharks act or behave in the same way, but we’ve compiled some common signs that someone could be a loan shark.

Signs that someone is a loan shark

• If they don’t provide full paperwork for the loan agreement
• If they won’t show you details of their consumer credit licence
• If they don’t give you clear information about the loan, such as the interest rate, total amount owed and repayment amounts etc.
• If the interest rate or fees added to the loan are very high, or they refuse to explain how it works or what will happen if you don’t pay on time
• If they only deal in cash or bank transfers
• If they lend money to other people as well as to you
• If the loan amount is increasing, even if you’re making repayments
• If they want to take something of yours as ‘security’ for the loan, such as valuables or your passport or bank card
• If they encourage you to do illegal acts to fund repayments e.g. shoplift
• If they use threats, violence or intimidation to make you repay
• If they tell you not to tell anyone they have lent you money.

How to find out if a lender is legitimate

As all licenced moneylenders must be approved by the FCA, you can check their register to see if the person offering to lend you money is on it. 
The website explains how to search their register to see if someone is legally allowed to lend you money. 

If they are not on the register, they are not authorised to lend you money, so you shouldn’t borrow from them or allow them into your home. 

A licenced lender will always be happy for you to check their credentials, so if someone offering to lend you money doesn’t want you to check their name on the register, this can be another sign that they might be a loan shark. 

How to solve loan shark problems

If you’ve discovered that you’ve borrowed money from a loan shark, it’s really important to take action and not just let the situation continue. There is help out there which can not only support you to get free of the loan shark and the debt, but can also stop them from doing it again to other people. 

Finding out that someone you trusted or may have known for a long time is a loan shark can be a shock, but there is nothing to be ashamed of if you have borrowed money from an unlicensed lender. They are the ones who have broken the law and are taking advantage of others, not you. 

How to report a loan shark

If you’ve found out that a lender is a loan shark, you can report them anonymously. You can report a loan shark even if you haven’t borrowed from them yourself, but a friend or family member has. The way to do this will depend where in the UK you live. 

• In England, you can report a loan shark to the Stop Loan Sharks team by calling 0300 555 2222 or emailing reportaloanshark@stoploansharks.gov.uk.
• In Scotland, you can call the Scottish Illegal Money Lending Unit on 0800 074 0878 to report a loan shark or use the form on the Trading Standards Scotland website. 
• In Wales, you can call the Wales Illegal Money Lending Unit on 0300 123 3311 or visit the Stop Loan Sharks Wales website. 
• If you’re in Northern Ireland, you can call the Trading Standards team on 0300 123 6262 or email them using tss@economy-ni.gov.uk.

These teams can also give you advice on what to do next. 

Dealing with a loan shark

When you report a loan shark using the above details, you can ask the team what you should do to deal with the loan shark when they next contact you. 

Many loan sharks will threaten people they have lent money to and tell them that they can go to prison if they don’t repay the loan. They may also threaten people you know, such as family and friends, or they might say that they’ll show up at your workplace instead. However, unauthorised lenders don’t have the legal right to make you repay the loan, despite what they might tell you. 

If you are threatened by a loan shark, you should report this to the police. If you feel that you are in immediate danger from them, you should call the police using the 999 emergency number. 

You can also get support from charities like StepChange and there is support and advice on the Stop Loan Sharks website. 

If you have other debts too, you might find it useful to read our guide on how to get help with debt.