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Colletta Smith - Loan Sharks

The BBC's Cost of Living Correspondent joined us to talk about loan sharks, and the better routes to lending for those that can't get credit

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Warnings are circulating from banks, councils and the police again about the dangers of borrowing from unregulated sources, including loan sharks.

COLLETTA: "I think the image that jumps into people's minds when we say loan sharks is a menacing looking individual either lurking around a dark corner offering people cash out of a brown paper bag, or turning up with threats on a doorstep. While that kind of stuff probably does exist, the actual definition of a loan shark is someone who isn't authorised by the financial conduct authority to lend money for profit, and this could essentially be your friend or someone else you know or trust. With this definition, it's no surprise that 56% of people considered a loan shark to be their friend before they borrowed, and nearly one in ten people turned to loan sharks to cover the costs of Christmas in 2022­"

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It's currently estimated that around a million people are borrowing from loan sharks, with nearly three million low income households having been declined a loan during the cost of living crisis. It's also estimated that around a third of people using loan sharks have actually never been refused credit. Colletta tells us why we should be avoiding loan sharks as a way to borrow money.

COLLETTA: "Loan sharks might seem friendly, and if you keep up your repayments they might stay that way, but there are many risks to borrowing from them. For example, you pay far more in interest than you would through any legal borrowing, you might be harassed or threatened if you get behind with your repayments and you might be pressured into borrowing more money to repay one loan with another, and end up in a spiral of debt that you can't repay. For example, it could start with a small loan for £50, but that £50 turned into thousands of pounds being paid in cash over several months, with no records kept.

It's important to say, you are not in trouble if you have borrowed from an unregulated lender. It is the person that's lent you the money that is committing a criminal offence, not you. There is an organisation in each country of the UK that can help you if you find yourself in trouble with a loan shark.

Above all, If someone who has lent you money threatens you or is violent, contact the police straight away."­

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Get advice and help reporting loan sharks

ENGLAND

Stop Loan Sharks (The England Illegal Money Lending Team)

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SCOTLAND

Scottish Illegal Money Lending Unit

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WALES

Stop Loan Sharks Wales

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NORTHERN IRELAND

Trading Standards

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If you're one of the 3 million people that have been refused credit and might think a loan shark is their only option, Credit Unions are a better alternative. They're a not-for-profit financial provider that helps people access banking products like loans

COLLETTA: "It does make you feel helpless when major lenders turn you away but it's not the be all and end all when it comes to credit. Credit Unions are usually run by members to benefit communities, rather than to make a profit and they're able to help those turned away by other providers. They work by all members sharing a ‘common bond’. For example, you might live in a certain area, work in the same industry or for certain employers or belong to the same trade union. They can provide loans at low rates, with the aim of providing help to people in need of financial advice, and they also provide education to encourage all members to save regularly."

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Find your local Credit Union

Visit the Money Helper website for help finding a credit union