Many of us worry about bills, and the recent increases in the cost of living have made covering these costs even more of a challenge. Sometimes, we may decide that loans are necessary to get us through the toughest months. However, it is important to borrow responsibly, as the world of money lending can be a dangerous one.
As much as we like to think that people are happy to help each other, there are people who prey on the vulnerable. They may offer to cover the costs of your bills, only to demand you pay them back with interest. A failure to pay them back may result in threats. These people are known as loan sharks.
Before You Borrow
It is important to recognise that loans don’t need to be your first resort when money is tight. Cut back where you can and consider some of our money-saving tips, such as changing energy suppliers. There are also plenty of benefits you can consider. If your circumstances have changed over the past few months, you may be eligible for more than you realise.
Borrowing Responsibly
Money is, unfortunately, a source of great stress for many people throughout the UK. No sooner is it in the bank account than bills and grocery trips have taken it all away again, with little to spare for luxuries, emergencies, or even upcoming bills before the next payday comes.
Borrowing money can help to cover these additional costs, but that doesn’t mean the stress is over. Repayments soon follow, and interest rates can mean money is tight again before you know it. This is why it’s so important that you borrow responsibly.
What are interest rates?
Usually when money is borrowed, you are expected to pay back what was loaned to you plus interest. Interest is a percentage of the amount you borrowed added onto your repayments. Some interest is added after a fixed period of time. From other lenders, the interest may be added immediately.
For example, a £1,000 loan with 5% interest would mean an additional £50 of repayments.
The higher the interest rate, the more you will be expected to repay. Moreover, the longer the repayment period, the more you are likely to pay back. Be mindful of the Annual Percentage Rate (APR) on any loans, as you may end up paying back more than you can afford.
Make sure you can afford it
Borrowing can often appear to be a simple solution to money problems. However, it is important to know whether you can afford to pay your lender back. If you are regularly left with only £25 in the bank, then you shouldn’t be signing yourself up to make £50 repayments every month.
Some people have been forced to borrow again to cover repayments, which is a slippery slope leading to long-term debt and even bankruptcy.
Family and friends
Many of us feel guilty about asking family or friends for help. Others may be too proud and don’t want to admit they need support. However, getting financial help from our loved ones is often the safest option – provided they can afford it.
Our family and friends are unlikely to ask for anything extra when it comes to paying them back. They are also more likely to be lenient if your repayments are occasionally late. Just be sure not to look a gift horse in the mouth. If your loved ones have stepped up to help you, it’s only right that you pay them back in full.
Find the best deals
When money gets tight, it’s natural to worry about how you’re going to cover your monthly bills. However, it’s important not to let this worry push you into making snap decisions. With so many lenders to choose from, some are certain to provide better deals than others. Even if you feel you don’t have long before your bills are due, there is still time to find an affordable lender you can trust.
Also be on the lookout for deals that are too good to be true. Some lenders will offer zero interest, but only if you repay in full within a certain timeframe. If you find that you can’t pay in time, you will be faced with a major increase in interest, which may be too difficult to repay.
Check reviews
No matter how much you compare the deals offered by different lenders, it’s customer experience that speaks loudest. To borrow responsibly, you need to know whether the lender is reliable and honest. Customer reviews will give you an idea as to whether or not the lender can be trusted.
It’s important to find genuine reviews. A supposed testimonial on their website could be entirely fabricated. Use sources such as Trustpilot and Reviews.io to make sure your lender is a reputable one.
Only borrow what you need
When it comes to taking a loan, you may find that you are eligible for more than you need. It may be tempting to take the larger amount in the hopes that it will soften the blow of your bills. However, a larger loan means more interest and larger repayments. To borrow responsibly, you should only take a loan that covers the payments you need to make.
A smaller loan is usually easier to pay back, and it won’t affect your credit score as much if things go awry.
Understand the agreement
A 2020 survey found that a worrying 99% of people don’t bother to read the terms and conditions when signing up to a new service or buying a product. However, the terms and conditions can hide sneaky tricks that means you end up paying more than you expect. Before agreeing to a loan, always make sure you understand the terms of the agreement.
Where possible, keep a copy in writing to cover yourself after the agreement is made. Some lenders may try to get extra money out of you with hidden terms and conditions.
Communicate
When you borrow money, it is important that you communicate with your lender if you ever struggle with your repayments. This is an important way to borrow responsibly, as a good lender will prefer to help you pay them back in full rather than be forced to chase you for payments you cannot afford.
Ultimately, lenders want their money back. By communicating effectively, they will understand how best to support you in paying what they are owed.
Avoiding Loan Sharks
Unfortunately, some people will attempt to prey on you when money is tight. Often, they may appear as friends who just want to help. However, they will quickly start asking you to pay back more than you borrowed. They are counting on you being too stressed to borrow responsibly. Some may even give you money without you asking for it, refusing to take it back so they can demand a bigger repayment later on.
These people are known as Loan Sharks.
How to spot a loan shark
Unfortunately, loan sharks appear just like anyone else. They will be friendly, at first, and you might think they genuinely just want to help. It is this false sense of security that they will use to convince you into taking a loan from them.
One warning sign is that you likely don’t know them well. They could be someone you’ve met a couple of times at the pub or who claims to be a friend of a friend. When they offer you money, it will often be in cash, though sometimes it may be a bank transfer.
At the time of offering you money, they will often be vague about the terms of repayment. Nothing will be put in writing. It will only be after you have accepted the money that they will start demanding more money than you were given. Sometimes, they may even talk about interest or APR, though there is no paperwork associated with the loan.
Loan sharks may also take items from you as insurance against the loan. These could include your bank card, benefit card, passport, watch, or other valuables. If you get behind on your repayments, they may also make threats. A common threat is that they are associated with a gang who will damage you or your property if you don’t pay them back.
Check your lender is legal
The occasional loan from family or friends is perfectly legal – though you should always make sure you know the terms of the agreement. However, if someone is lending money with interest, they should be registered with the Financial Conduct Authority (FCA). If you want to borrow responsibly, you should check your lender is on the FCA register.
What should I do if I’ve borrowed from a loan shark?
If you have borrowed from a loan shark, it is important to recognise that you have not done anything illegal. You are the victim of a crime. Get in touch with Stop Loan Sharks; they will help you explore the options to get help, and will investigate the loan shark. Stop Loan Sharks have the power to prosecute loan sharks and illegal money lenders.
If you are being threatened, and the loan shark turns up at your home, it is advised that you call the police.
How to tell if a loved one is the victim of a loan shark
Loan sharks will target anyone they think is vulnerable. Common signs that someone else is being targeted by a loan shark include:
- Increasing debt despite repayments
- Worrying that they’ll be hurt if they don’t pay their debts
- Anxiety or reluctance to leave the house
- Receiving threatening text messages
- Giving away personal items to strangers
- Emotionally withdrawing from friends and family
- Signs of physical violence
- Coercion into out-of-character behaviours
If you think someone else is being targeted, you can contact Stop Loan Sharks on their behalf. You should also try to talk to them about it. Be supportive, and don’t blame them for falling victim. Loan sharks know how to trick people into not borrowing responsibly.
Visit Stop Loan Sharks For More Information
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