It’s a few days before payday and you are struggling to get through those last few days of the month. Then the geyser bursts and some of your stock is ruined, leaving you with a crisis and not enough cash to handle it. Then you remember receiving an SMS earlier that morning about getting loans quickly and easily. You take another look at the SMS, knowing it comes from a well-known loan shark and you hesitate: should you take out a loan of R5 000 to cover the costs of this emergency, or not?
Loan sharks are unregistered credit providers who lend money to others without a legal license to do so. As they are unregulated, they can charge exorbitant interest on loans. The National Credit Regulator in South Africa requires all money lenders to be regulated. Operating an unlicensed money lending business is a crime, which means loan sharks operate illegally.
If you find yourself in a tight spot financially, who should you turn to? We look how loan sharks operate and why you should avoid them.
Usually, you will be charged very high interest rates;
The repayment terms are quite short and there could be an upfront fee charged should you default on these;
Little to no detail is given about the terms of the loan, and there will be no paperwork or physical agreement to provide a record of any monies being exchanged.
Loan sharks are crafty – their terms and conditions will ensure you are driven into a corner with the high interest rates and short repayment terms. On top of that, they will add on the upfront penalty, leaving you in a tighter place financially than before getting the loan. Knowing you are struggling to meet your commitment on paying back the money, loan sharks will pressure you into borrowing more money to cover your debt. It is best to avoid this avenue altogether.
Which still leaves you with a flooded storeroom and no hot water. Now what?
As a whole, South Africans struggle with debt, with large numbers of the population either in debt or under debt review. With the rising costs of living – particularly with hikes in the cost of food, water and electricity – many people are not able to manage their debt and turn to loans to get themselves out of a tight corner. As we have already shown, loan sharks are not the answer.
Start investigating other options. And as uncomfortable as it may be, ask family and friends if they would be willing to help you first. Should this not be a viable option, start doing some research with registered credit providers or financial institutions. Find out which bank will offer you the best interest rate and make sure you understand the terms and conditions of the repayments.
Even more importantly, educate yourself on financial literacy – learn how to create a budget and stick to it, how to deal with debt and get yourself into a position to start saving. Do your research and empower yourself for a brighter financial future, free of the fear of becoming fodder for loan sharks.