A loan shark is a person or company that lends people money and charges upfront fees and a high interest rate on very short-term, small loans. Typically, loan sharks target people who are in financial distress and in desperate need of cash. They will harass borrowers by means of intimidation, threats, and blackmail if the lend money is not paid back on time. Some loan sharks will even demand a borrower’s ID card or other personal documents as a guarantee of repayment.

Loan sharks attract borrowers with promises of “instant approval,” “cheap loans,” and “no credit check needed.” They also target temporary workers, unemployed people, minorities, and low-income borrowers who are unfortunately already trapped in a cycle of debt. Many loan sharks do not have a license or certification, which means that they are operating illegally.

Why People Borrow from Loan Sharks

The main reasons people resort to loan sharks include:

• Ease: no one is turned down
• Convenience: no credit check is required
• Speed: money is paid out straight away

Unlike banks or other money lenders, loan sharks do not have strict lending criteria, and they offer instant cash. Victims who are desperate for money and those who have been refused a loan by conventional lenders usually fall in the hands of loan sharks. Many borrowers have a low credit score and no other option to obtain money. People who have missed loan and credit payments and have delinquent accounts also get reeled in by loan sharks. Other reasons include unexpected emergencies like divorce, loss of employment, poor health, death, and loss of income.

Reasons Employees Should Avoid Loan Sharks

As an employer there are different options you could offer your employees so that they do not resort to borrowing money from loan sharks. The following is a list of reasons why your employees should avoid this type of lender:

• High APR
• High penalty fees
• Short repayment term
• Stress and pressure
• Unethical practice to recover the debts
• Pressure to obtain a new loan

How to Raise Awareness About Loan Sharks

Raise awareness about loan sharks and illegal lending by telling your employees which red flags to watch out for when they are attempting to borrow money. These are:

• The lender does not provide a loan agreement, record of payments, or a license
• The lender fails to disclose penalty charges or interest rates
• Lenders charge hidden fees
• Rates as high as 1.5% per day
• The lender is unwilling to settle the debt

Helping Employees Avoid Loan Sharks

Help your employees avoid getting into a deeper financial crisis by warning them against loan sharks and offering alternative solutions that can help them manage their finances. Some helpful advice an employer can provide via financial wellbeing workshops includes:

• Setting a budget: Setting a monthly budget can help employees see how much money they need to put aside for essentials like rent, mortgage payment, utilities, gas, food, and other payments. They will also be able to see how much money they have left to save or put into a retirement plan. Once an employee has been keeping a budget for several months, he or she can look back and see where changes can be made, and costs can be cut.
• Save, save, save: Employees should be encouraged to save as much as possible. Some employers offer their employees a savings plan. For this type of plan, the employer provides a pooled investment account. The account allows employees to allocate a percentage of their pre-tax wages for retirement or other long-term aims such as buying a home or paying for college tuition. Most employers match their employee’s contributions up to a certain limit.  
• Borrow safely: If employees should absolutely need to borrow money, they should do so form a legitimate lender. That means one who is licensed and has a good reputation. For example, a Credit Union. Credit Union loans are among the most competitive loans available these days. This is because they typically have low-interest rates and fees which will save your employees money overall.
• Invest money: You could help your employees save by offering them advice on making investments. If you and your HR team are not knowledgeable about this subject, it’s a good idea to invite an investment expert and have the person talk to your employees.
• Help from the government: If employees are struggling to make ends meet, you might advise them to talk to a debt counselor. They may not be getting all the government benefits that they are entitled to.

What You Should Know About Financial Wellbeing Services

Offering financial wellbeing services is beneficial for your employees and your agency. Here’s why:

• A financial wellness program will keep you competitive: Employees today, particularly millennials, want increased benefit options. Many are even prepared to take jobs with slightly lower pay but better benefits. When you provide additional options, such as financial wellness programs, you are more likely to draw new talent.
• A financial wellness program keeps your employees engaged: Dealing with financial issues causes employees a lot of stress. When they are stressed, they are distracted, and not 100% focused on their job. With a better understanding of how to manage their finances, their financial wellness increases and so does their concentration at work.
• A financial wellness program helps to establish employee loyalty: Helping employees overcome their financial constraints by offering financial wellness programs makes them feel like you’re on their side. It also shows that as leader, you have a strong social responsibility and are willing to lend a hand. All this adds up to better employee loyalty.

Helping your employees avoid predatory loan sharks is just one step on the path to their financial freedom. With better and more ethical solutions for their economic emergencies, you will give them the peace of mind they need to continue performing at their best.