In this situation, you can easily fall pray to one of the loan sharks by borrowing money from them. They give you quick and easy access to cash, but using this seemingly great opportunity is not the brightest idea. Here are the reasons for this.
Meet the Loan Sharks
A loan shark is an individual or organization that lends money to consumers without being licensed to perform this kind of commercial transaction. The licensed lenders in South Africa are regulated by the National Credit Regulator (NCR) and unlicensed money lending is illegal. Simply put, loan sharks commit a crime.
Since they are unlicensed, loan sharks do not adhere to the regulations of the National Credit Act and lend money at unfair terms, which can be devastating to the borrower. Watch out for the following features to recognize loans from loan sharks:
- Very high interest
- Very short repayment term - You are charged a fee if you do not repay your debt within the set term.
- Very few details on the terms and conditions - There are usually no documents and a loan agreement. The lender can set the repayment amount and schedule and any other fees as they like.
The Dangers of Dealing with Loan Sharks
In most cases, when you borrow money from a loan shark, the interest is quite high and this results in a huge interest amount which you need to pay in addition to the principal loan amount. Besides, the repayment term is extremely short. Usually, you need to repay the principal plus interest in no more than a month. As a result, you will most likely be unable to repay your debt in full. In this case, the lender will charge a penalty fee and the debt amount will increase further.
Loan sharks can resort to harassment and bullying if you do not repay your debt timely. They are also known for putting borrowers under pressure to borrow even more money in order to repay what they already owe. That way, you can get into a vicious debt cycle.
Alternatives to Borrowing from Loan Sharks
If you have financial difficulties, there is a huge risk of getting into even more trouble if you use the credit products of loan sharks. That is why it is crucial to consider the alternative options.
Find out whether you can borrow money without interest from family and friends. If this is not an option, you need to turn to the licensed lenders. Compare the different loans which they have to offer and pick the one with the most affordable interest, fees, total cost and monthly payment. When you borrow money from a licensed lender, your rights are protected by the National Credit Act so you will be in a much better position as a borrower.