What is Loan Sharking? What are Loan Sharks?

Loan sharking refers to predatory lending practices by individuals or organizations (aka loan sharks) that charge extraordinarily-high interest rates.

How do Loan Sharks Work?

Loan sharking involves taking advantage of the borrower's weak credit or collateral condition.

Typically, when a borrower has no option to secure a traditional bank loan, a loan shark does not usually require collateral for a loan, a bank account or even a written loan agreement. While this may sound good at first, a loan shark will charge very high interest on the loan, which makes it very difficult to pay the loan back on time, or at all.

The short answer is yes, loan sharking is often legal. However, loan sharking is usually the province of organized crime or otherwise usurious lenders that issue payday loans or title loans with sky-high interest rates.

At best, borrowing under such terms is not in a business's or individual's long term best interest. At its worst, such borrowing can be dangerous.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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