Predatory Loans

What is a 'predatory loan'?

Predatory loans are really an American term which we still worry about within the UK. This links into things like loan sharks and doorstep lending. A predatory loan is where someone encourages you to borrow more than you can afford and charges an excessive interest rate for doing so.

What is a 'loan shark'?

A loan shark is not really legally defined, but a loan shark is somebody who charges, normally, excessive rates of interest for very short-term debt. An example of this would be, people who are involved in almost week or day loans. So, the loan sharks lend people money for a week, two weeks, or three weeks, and charge a set amount of interest. So, they might advance £200 in advance of pay day, and want £220 or £230 pounds back on pay day. That doesn't sound very much, but when you look at the actual interest rate that's been applied there, it is interest rates in excess of 100%.

Why are predatory loans illegal?

Such loans are considered illegal and would be set aside if brought to court because the interest rate is deemed to be punitive on the customer, and an unfair contract term.

Is it a good idea to get a predatory loan?

I would say it's very rarely a good idea to get a predatory loan, but sometimes it is the only way out of a problem, therefore people should only enter into a predatory loan if they're very certain that it's the only way out for them.