Loan Sharks: What They are and Why They are Illegal

Why loan sharks are illegal

Loan Sharks and why they are illegal 

What are Loan Sharks?

Loan sharks are individuals or institutions who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the approved lending laws. Because loan sharks operating illegally cannot reasonably expect to be able to use the legal system to collect such debts, they often resort to enforcing repayment by blackmail and threats of violence.

How Does Loan Sharks Operate?

Ideally any organization that claims to be a financial institution more so a money lender should be licensed and authorized to operate by Central Bank of Nigeria (CBN). That is what empowers such an entity to lend money to members of the public legally. So money lenders who has no authorization from CBN are breaking the law. And such illegal lenders are known as loan sharks.

Loan sharks often work from home, charge very high rates of interest and don’t give you much paperwork to confirm the arrangements they’ve made with you. A loan shark usually has lots of customers and lends money like a business, but their lending is illegal.

Loan sharks often take other illegal action to collect the money they’ve lent you. Some of their measures include threats of violence, blackmail, defamation or taking away your credit cards or valuables.

This loan sharks usually target families on low income and people in urgent need of cash. In fact the activities of loan sharks are very similar to those of fake online loan apps in Nigeria.

Why are Loan Sharks Illegal?

Once it is a loan shark then it is illegal. So you ask, why are loan sharks illegal?

First, they operate without license nor authorization.

Secondly their operations are not consistent with the applicable laws in their country of operation.

Finally, because they started on an illegal premise they also end on illegal premise by means not known to the law in a bid to recover the money from borrowers.

Also Read:

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Ways To Identify Loan Sharks In Nigeria

  1. Accessing and misusing the contact’s number and picture stored in one’s mobile phone.
  2. Invading customers’ data privacy and sending defamatory and threatening messages to them and their contact list
  3. Extremely high interest rate and penalties.
  4. Deduction of processing and/or security deposit before loan processing
  5. Interest deducted before providing the loan.
  6. Constant harassment and threats on customers both online and offline
  7. Harsh and unethical means of recovery.
  8. Use of rude and derogatory statement by loan app staff on customers

What Happens if You Can’t Pay Back a Loan Shark?

Loan sharks ensure they get their money back through the threat and use of force. Your interest keeps compounding, so it gets to be a very dangerous situation.

Unfortunately for them they can’t sue you because they are operating outside the bounds of the law.

How to Protect Yourself Against Loan Sharks in Nigeria

  1. Check for lenders contact information like phone number, email address and physical address.
  2. Verify the online reviews by customers given for the lender.
  3. Check the professional reviews on trust worthy lenders.
  4. Make sure the loan app has been properly licensed by the Central Bank of Nigeria (CBN)
  5. Review the app permissions regularly and give access permissions ONLY tor the purpose of the loan applied for.

Difference Between Loan Sharks and Predatory Lenders

It is important to understand that Loan sharks are not the same thing as predatory lenders. Predatory lenders such as payday or title loans, also come with very high interest rates. But they are not loan sharks.

A key difference between “traditional” loan sharking and predatory lending is that lenders alleged to be engaged in the latter practice are expected to stay within the law when making and collecting loans. Thus the debate into such practices often focuses on whether they are ethical as opposed to whether they are legal.


Loan Sharks are illegal because they operate outside the law using threats and blackmail on their victims in a bid to recover their money.

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