The downsides of borrowing money from a loan shark
Many Hispanics living in the United States have difficulty accessing credit from a bank. If you apply for a loan with a bank, you may be rejected because:
- You don’t have a credit history in the US yet.
- You have had financial difficulties in the past and your credit has suffered
If you dream of owning a home, buying a car, or starting your own business, it will be difficult and expensive to achieve these goals without establishing and maintaining solid credit. Because this takes time and good financial practices, many Hispanics find immediate help from a loan shark.
What is a usurer?
When you are looking for money, you may hear from people you know: “I know this person who lends money and does not even ask for papers.” This person who “lends money” could be a friend of a friend, someone who is a friend of the family, or it could even be found in a store in your neighborhood. There are many disadvantages to using the services of a loan shark even though many claim to be legitimate lenders.
- They charge weekly interest rates – What is the real cost of borrowing from a loan shark? The lender will give you a weekly interest rate instead of an annual one. Remember that bank loans and other financial institutions always use annual interest. Let’s take a look at a typical case: the lender gives you $ 1,000 and you agree to pay 5% weekly interest on this amount. 5% each week translates to about 20% each month, and if you multiply it by 12 months in the year, you have an annual interest rate of 260%!
- Payments are confusing – weekly interest rates that don’t seem that high can translate to up to 10, 20, and 30 times more interest than you would pay on a traditional loan agreement.
- Loans are difficult to repay. In fact, they are designed to be almost impossible to pay for. Many people who have borrowed from these lenders end up losing more than they originally invested. If you cannot pay, the lender may constantly harass you or even threaten you with violence. Many people who borrow money from loan sharks lose their businesses.
- They do not report to the credit bureaus: loan sharks sometimes do not report their loans to the credit bureaus. To establish, protect, and maintain your credit history, you must make sure your creditors report your loans to the credit bureaus. If not, there is no official record of your loan payments.
- They don’t operate within regulations: If you have a complaint, you have nowhere to go because loan sharks don’t have to comply with established regulations to protect you as a consumer.
In general, it is best to avoid these types of lenders at all costs. If you need money for your business or for an emergency and if you do not have access to a bank loan, try to obtain loans with ACCION, a non-profit organization that makes business and personal loans and reports to the three main credit bureaus. .
