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Tata Capital > Blog > Generic > What Is a Loan Shark?


What Is a Loan Shark?

What Is a Loan Shark?

Loans have emerged as an essential financial tool in recent years. With careful planning, loans can not only let you indulge in materialistic needs but can also provide financial aid in times of emergencies.

However, not everyone can take advantage of loans. Most financial institutions deny loans to individuals with a bad credit score or no sources of income. Desperate for money, these unfortunate souls often end up as victims of cunning loan sharks.

In this article, we delve into the depths of this issue, exploring what a loan shark is, how to identify one, and, most importantly, how to stay safe.

What is a loan shark?

A loan shark, also known as a money shark, is someone or a group that engages in predatory lending practices outside the boundaries of the law. Unlike legitimate financial institutions, loan sharks do not follow the regulations set by the RBI.

With their local network, loan sharks seek out vulnerable individuals in desperate need of money. Benefiting from their situation, the lenders offer them instant cash even with a poor credit history. However, these loans are provided without any clarity on the loan terms.

As a result, the people caught in this trap often get stuck in a vicious cycle of debt, struggling to make payments that don't seem to dent the original amount they owe. When they fail to repay their debt, these lenders send goons to threaten and extort money by any means necessary.

Signs of a loan shark

Knowing how to spot a loan shark is essential to safeguard yourself from falling into their traps. Keep an eye out for these red flags in a lender:

1. No official authorization: Legitimate lenders are registered and overseen by financial authorities. However, loan sharks frequently lack the licenses and approvals to function as legitimate lenders.

2. Pushy tactics: Loan sharks might use forceful methods to pressure you into quick decisions. They often make the offer seem lucrative and make you feel like you will lose an excellent opportunity if you don’t agree to their terms immediately.

3. Lack of clarity: Reputable lenders provide transparent documentation that clearly spells out loan terms, interest rates, extra charges, and repayment plans. On the other hand, loan sharks might dodge offering detailed information, leaving borrowers clueless about the actual loan costs.

4. Extremely high interest rates: A major red flag for spotting a loan shark is the excessively high interest rate they impose, often surpassing legal limits by a large margin. These high and recurring interest rates often end up being much larger than the initial borrowed sum.

Safety precautions

Steer clear of illegal money sharks by following these tactics:

1. Do your homework: It's always wise to thoroughly research a lender before taking a loan. Ensure they have the necessary licenses and are regulated by the appropriate financial authorities.

2. Go through the details: Take your time to read and understand all the loan documents before putting your signature on anything. Trustworthy lenders provide clear and easy-to-understand terms and conditions without hurrying you to decide.

3. Compare different options: Don't hesitate to get loan quotes from several lenders. Comparing interest rates and loan terms can help you spot offers that don't make sense.

4. Report anything fishy: The government has been taking measures to stop illegal moneylending practices in India. So, if you suspect a lender is using unfair tactics, report them to the relevant authorities immediately.

To Sum Up

Loan sharking has been a concern for ages now. Most people believe that illegal money lending is restricted to rural areas, but that is not the case. With many unlawful money lending apps also emerging recently, more people are prone to being loan sharking victims than ever before. 

Hence, it is always advised to take loans from reputed and trusted financial institutions like Tata Capital. With loan transparency, competitive interest rates, and flexible eligibility criteria, Tata Capital ensures your loan process is seamless and safe. Apply for a personal loan today! 


1. Why is it called a loan shark?

The term “Loan sharking” gained popularity during the American Civil Wars. With many Americans falling into the debt traps of these private lenders, the newspapers at the time started calling these lenders “Loan Sharks”. The name ‘shark’ highlighted their aggressive behaviour and ruthlessness, resembling marine predators. 

2. Why do people use loan sharks?

Individuals who fall into the debt trap set by loan sharks are generally in desperate need of money. A typical victim of a loan shark has a bad credit history and an extreme urgency for cash. When these factors come into play, borrowers tend to ignore red flags and agree to borrow money at an exorbitant interest rate.

3. Is loan sharking legal in India?

No, loan sharking is not legal in India, and the government has specific laws to crack down on cases of illegal money lending. You can approach the court for help in such a situation. If the court finds something fishy in the terms, it can release you from all payment obligations or ask the creditor to refund any extra money paid. 

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