Is Loan Sharking Illegal? Find Out Now

If you are here, there can be two possibilities: either you will take a loan from a loan sharker, or you have already been a part of this whole money lending process.

Whatever the reason, I am here to help you know everything about loan sharking. The biggest question people ask about it is whether it is legal or illegal.

Loan sharking is illegal according to law. You can get the idea about it when a loan shark tells you about the huge sum of money you have to pay in the interest rate, which is ever within the legal limit. But the reasons why it is illegal are much more complex, and only a financial advisor or an economic expert can describe this.

If you also want to know why it is illegal and what you can do to get out of it if you are now already involved with it, then stick till the end.   

Why Is Loan Sharking Illegal? Exploring The Reasons

Simply put, loan sharking is illegal because there is no state-level approval of this whole money lending procedure. But if you want to know the in-depth analysis, then keep reading.

It Is Not State- Approved

To lend money lawfully in the UK, all lenders must be approved and regulated by the FCA (Financial Conduct Authority). This guarantees that lenders adhere to the following criteria and that borrowers are adequately protected.

As the FCA does not support loan sharks, they operate unlawfully. Loan sharks, unlike authorized lenders, do not follow any of the FCA’s industry guidelines, putting anyone who borrows from them at risk.

Now, for the US citizens.

Many states, on the other hand, have implemented small loan legislation restricting the amount of interest that can be charged.

Anyone lending less than $5,000 in Ohio must be licensed. In terms of interest, lenders can only charge up to 28 percent per year on amounts less than $1,000 and 22 percent on amounts greater than $1,000.

Anything beyond that is against the law. Contrarily, Loan sharks can charge anywhere from 100% to 3000% interest, and in some cases, even more.

Any lender providing a loan less than $1,000 in Alabama must obtain a license, according to the state’s Small Loan Act. Lenders in Alabama are allowed to charge a maximum of 3% interest per month on principal loan sums of less than $200 and 2% interest per month on principal balances of $200 to $1,000.

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Customers are protected by these restrictions from loan sharks. You’re probably dealing with a loan shark if the individual lending your money doesn’t have a license and charges you 50, 100, or 150 percent interest.

It Can Also Increase Interest In The Middle Of The Process

Loan Sharks frequently charge exorbitant interest rates and may threaten them with violence if they fail to pay their debts.

Even if you just borrow a little amount of money initially, a loan shark might trap you in this lending business and leave you in debt for thousands of pounds.

It Involves Other Crimes

Some loan sharks may also be involved in other illegal activities like money laundering. Aside from that, borrowers have been dragged into even more dangerous and destructive circumstances, such as drug trafficking, to repay their loans.

So, if you spot a Loan shark, immediately stop any conversation with him and call the authorities to report him.

Now you know- why is loan sharking illegal. Now, it’s time to know how to spot one.

How to Spot a Loan Sharker?

Below are some of the warning indications that someone is a loan shark and is not authorized by the FCA.

Interest Rate Will Be Un-Payable

Your debt will never be returned. It means if you borrow money from a loan shark, you’ll almost certainly be charged such exorbitant interest rates that are un-payable.

Everything Will Be Unclear

There is a lack of information concerning the loan when you deal with an unauthorized lender. The answers to the questions about the interest rate and the terms of repayment will never be answered clearly.

Loan sharks are always evasive when it comes to the rate of interest they charge and when the debt will be repaid.

No Check Is Used

When it comes to loans, no checks are involved. Loan sharks, unlike approved lenders, do not perform credit checks or affordability assessments.


When you initially encounter a loan shark, they will normally appear kind and sympathetic to you and offer you their help. This is done to gain your trust and increase your likelihood of borrowing money from them.

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Sometimes, they even compelled you to get a second loan to repay your first one. This provides the loan shark additional ‘control’ over you, putting you at risk of intimidation and violence.

If you don’t pay your debt, loan sharks may threaten you with violence, which licensed lenders would never do. If you don’t pay back the money, loan sharks cannot take you to court.

They do not have the legal power to do so, and you have no legal need to compensate them. Therefore, they only do violent and even give threats of killing.

So, you must avoid loan sharks when you see one.

What If I Had Already Taken a Loan From a Loan Shark?

If you have accepted money from a loan shark, you should get in touch with the authorities immediately.

You have not done any illogical activity or crime. While lending money without following the legal procedure is unlawful, getting a loan from an unauthorized lender is not.

Thus, if you got a loan from a loan shark, you don’t have to be embarrassed or afraid of getting into legal trouble because you didn’t break any laws.

How To Report a Loan Sharker?

You have the option of reporting a loan shark anonymously or providing your identification and further information to aid the loan shark investigation. All loan shark reports will be kept private and investigated.

You may report a loan shark on the Stop Loan Sharks site in England. You can also dial 0300 555 2222. You can report them to Trading Standards Scotland online or by calling 0800 074 0878 in Scotland.

You can reach the Illegal Money Lending Unit in Wales by dialing 0300 123 3311. In the US, you can also contact the relevant authority.

Call the authorities straight away if you’re in danger from a loan shark. If you desire, you will receive a call back to discuss the problem further after reporting a loan shark.

You may also be assigned a liaison officer who will assist you during the inquiry and with any financial concerns you may have.

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You can make a formal witness statement if you report a loan shark. You can, however, choose to remain anonymous, and the investigation will continue. Some loan sharks may pass themselves off as payday or doorstep lenders.

However, these lenders must be authorized by the FCA, so you may check the FCA register to see if they are reputable lenders.

If you’ve already taken out a loan from a loan shark, you haven’t done anything wrong, but you should expose them as soon as possible.

Alternatives To Take Loan Other Than Loan Sharks?

Even if you have a small wage or a terrible credit record, there are safer ways to get money or cover expenses. They are as follows:

Government Help

Always take government assistance, such as benefits and funds to pay for food and emergency expenses. On the government’s website, you may learn how to get a head start on your first benefit payment.

Jobcentre Plus Credit unions, which can help you save money while still providing reasonable credit products, can also provide advice on your possibilities.

There’s probably a credit union in your neighborhood that will take credit applications from persons with bad credit.

Employer-sponsored Lending Programs

 Ask your human resources department whether they may provide any short-term support, such as a wage advance or overtime aid with your utilities.

Many utility companies have programs and scholarships in place for customers who are behind on their gas or electric bills.

You might even be eligible for the Winter Fuel Payment program, which can help you deal with rising energy prices during the colder months.

Take the loan the right way and keep yourself away from any trouble.

Wrapping Up

So, is loan sharking illegal?

Yes, Loan sharking is illegal because unlicensed and unregulated lenders are involved in it. They may impose exorbitant interest rates and threaten or intimidate anyone who borrows money from them.

Even though loan sharking is prohibited, many people are nonetheless victims of predatory lenders.

So, avoid taking money from loan shakers and go for legal options if you want to. Furthermore, it is better to go for other alternatives if you really need some money, like government programs or employer sponsorship schemes, etc.