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Payday lenders vs loan sharks
The financial market is experiencing a wave of change brought about by changes proposed by new rules and regulations. These rules dictate the actions that payday loan lenders ought to take in the activities of their business. The demand for these types of loans will not disappear because of increased regulation. If you cannot get a loan via traditional means, you’ll contact real loan sharks. The existence of restrictive regulations does not necessarily mean that individuals will lack an alternative source of funds
The following details show why most individuals seeking instant funding may look for loan sharks:
Loan sharks offer an annual percentage rate (APR) of about 150%. The payday lenders, on the other hand, charge interest with an APR of between 390%and 780%. Therefore, the loan sharks are a cheaper option for borrowers as they will get to borrow loans that have a lower interest. What’s more the interest rates charged by loan sharks or the negotiable whereas the payday lenders get to dictate the rate that they will charge, which are non-negotiable?
Another attractive aspect of transacting with the loan sharks is that they offer grace periods. This enables borrowers to plan their finances so as to repay their loans. However, there is no grace period granted by payday lenders. Also, the loan sharks offer frequent borrower discount whereas this is a rare case for payday lenders.
The regulations require that the payday lenders determine that the borrowers are able to repay the amounts that they borrow. This is done by checking their debt history as well as verifying their income.
This may leave a lot of individuals with no access to funds if they fail to meet such requirements. Due to this, they will then look for loan sharks, who do not carry out such investigations before advancing loans. However, they may use threats or even possess the property of individuals who fail to pay the amounts borrowed.
Payday lenders may send a debt collector to follow up on payments that are expected from defaulters. This will probably hurt a borrower’s credit rating. Loan sharks, on the other hand, do not harm a borrower’s credit rating. However, harassment and threats to the borrower will probably be used as an attempt to recover the loan amount in case a borrower fails to repay it.
This all goes to prove the fact that even though the regulations may lock out a majority of individuals from getting access to funds from the payday lenders, people will always find a source to borrow from.
The loan sharks are easily available and they offer easy terms and access to the individuals who approach them for loans. The attractive offers such as grace periods, lower and negotiable interest rates as well as frequent borrower discounts may increase the number of borrowers and return borrowers that they will have.
The changing financial market and regulations seem to open up the business opportunities for loan sharks. Restrictive regulations do not necessarily restrict the borrowers from accessing these types of loans.
The demand for such types of loans is still growing and thus, the borrowers will still approach loan sharks. In as much as these regulations aim to protect the borrowers, they are making them vulnerable to the loan sharks, who are mostly known to operate ruthlessly and may ‘bite’ a big chunk of the borrowers’ available resources.