They charge extreme (illegally high) interest. And they’ll resort to physical violence if you can’t pay up.

A loan shark gives desperate people that need cash big loans at absurd interest rates.

Long story short it is a trap... you already are left without money, a loan shark preys on that by fixing your debt issue short term.. then kicks you deeper in debt due to absurd interest rates... so to get rid of the loan sharks loan..who will press and harass you to pay it off.. many opt to lend money from other.. possibly loan sharks too. Or friends.

It is a spiral of debt.

Please don’t forget that loan sharks are outfits that advertise on tv (in the U.K. amigo loans or similar) not just shady people / ‘the mob’. Payday loan companies are loan sharks.

APR’s can be hundreds or thousands of % of the principal meaning if you needed 200 to get you through three weeks you already owe triple + When it comes due. If you didn’t have 200 to start with you definitely don’t have the repayment.

They prey on the vulnerable. They’re disgusting.

Do they actually make excessive profits, and if so what's to stop other people from entering the market and undercutting them? My guess is that the default rate on payday loans is so high that they actually do have to charge such interest rates to cover the risk from an actuarial perspective.

It also doesn't need to be a loan shark to get into a debt spiral. Things like buying a new car on the 7 year loan with very little money down can make your $40k vehicle cost closer to $52k, whereas taking a 4 year loan and putting more down puts the cost closer to $42k.

To add to what has already been said, "loan sharks" (high interest, short term loans) are often just as happy to take whatever collateral you put up to secure the loan. $500 payday loan, 600% APR (not an exaggeration), and maybe you put your car note down as collateral. If you have a 30 day loan term and can't come up with the roughly $750 in a month, they just bought your car for $500.

Loan sharks are bad because they charge very high interest rates on the money they lend. This means that if you borrow money from them, you will have to pay back much more money than you borrowed. They also often use mean and scary ways to get the money back if you can't pay them on time, which can be very scary and upsetting. It's better to borrow from a bank or credit union, where the interest rates are lower and they are more understanding if you have trouble paying back the loan.

Because they offer loans at absurd interest rates with the expectation that you can/will NEVER repay the debt, and they will continue to collect from you an amount FAR GREATER than you ever borrowed in the first place.

Payday Loan Companies are only different in that they set their rates just below what a given jurisdiction would deem illegal.

What you're talking about is usually called predatory lending. Generally the term loan shark refers to people who operate outside of the law.

That's primarily why they're so dangerous, they're just like predatory lending companies but on top of that you have no legal recourse, nor does the loan shark have to obey any laws surrounding lending. Depending on what sort of loan shark they are they may even resort to intimidation and violence.

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That's bad, but it's not really a spiral if you do things like keep a job and make sure that your monthly payments for everything are lower than your income each month. The problem with a lot of these loans is that they're structured to almost never pay off the principle of the loan, and the interest keeps compounding.

The really bad legal examples IMO are student loans - they're huge loans that even if you get your degree you're not likely to be able to afford a payment that would pay them off in a reasonable time, and so that's why you end up with stories like "I borrowed $30,000 to go to college, and after 10 years of $500/month payments, I now only owe $47,000" (I'm making up numbers for the quote but real examples exist for this)

So I think that this has mostly been said across the replies thus far but to compile things in one place:

First there is the question of terminology - a "loan shark" is a term used primarily to describe a criminal moneylender who's running a scam - they'll lend you money, but then any money you pay back will go towards absurdly high interest rates, and not pay down the loan balance; and if you fail to pay, they get violent (or have "associates" who get violent on their behalf).

However, because humans love hyperbole, the term "loan shark" may be used to describe payday loan lenders - essentially the last legal resort for people who need cash - the idea is that if you borrow money from them, you don't need a credit check or anything like that, and they give you some high-ish percentage in a lump sum of what you would get on your next payday, in return for your next paycheck in its entirety (ex: if you make $500 per paycheck, you might get anywhere from $450-480 from a payday lender) - the problem comes up when you can't pay your whole paycheck to them on time, and they let you pay it off over a longer term. The way these usually end up structured, you could pay thousands or tens of thousands in little $15 payments over years for that $450 you borrowed, if you don't quickly pay off the principle. And if you default on this loan, a lot of places tend to employ debt collectors who are a bit less keen to follow the law than you'd hope, and will make it seem, at least, like they might actually commit violence or do something within the law to make your life miserable.

The reasons that this is bad are many, but the main one is that if you are in a situation where you need this type of loan, it is almost certainly because you need some other sort of help instead, but the money issue looks like the biggest issue. Even if it is a strict money issue, this is a bandaid on a bullet wound and you need financial planning help.

The fact is that even the legal companies are predatory - the real money in payday lending is in those absurd APRs, and knowing that most people feel an obligation to pay their debts even if those terms are grossly unfair; people tend to not know their rights, tend to be pretty bad at math that involves percentages, and all of this helps to rig the game in their favor.

Now, the very tiny "but" - for the people who have absolutely no other option, this can be the lesser of two really shitty outcomes. And this is one thing I think people get wrong talking about them - people aren't stupid, they know it's a bad deal most of the time, but it's a less punishing option than defaulting on a credit card or car note or something else like that.

But by and large, if you have any other option, you should take it over a payday loan. Borrow from friends and family, see if you can take out a personal loan from the bank, ask for an advance from your job, angle for a raise, take on a part time second job for a while to pay off any of the above and even things out, skip a few meals. These will all hurt much less in the long run than the giant barbed financial probe that are these predatory loans.

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I did a few months work in a lending environment.

I was astounded at some of the people that got loans after being bankrupt after 1 day.

They got loans for 100k AUD cars etc At 45% interest Was the worst I saw.

They didn't care, they got credit and a new car.