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Loan sharks prey on people who are financially weak and needed to borrow money urgently. For example, people with bad credit or low income are not able to borrow a 2000 loan cheaply from banks and credit unions, so they have to resort to high risk loans at usury rates. Most victims of loan sharks are not financially savvy and do not understand the risk of the high borrowing costs. Their primary concern is to get any loan approved so that they can deal with their immediate financial difficulties. Payments are thrown to the back of their minds, after all the due date is still weeks away.

Despite its obvious dangers, predatory lending fills the big gap faced by people who feel they are excluded from financial services. When you have late payments or bankruptcy etc, you will not be able to borrow money from legitimate sources. And when you are desperate to get a loan, you are less concerned with how much loan sharks wanted to charge you for that $1000 loan.

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You will be surprised that people who borrow from loan sharks come from different tiers of society, and not just the poor, low income or low educated group. However, a majority of borrowers include illegal immigrants, single moms, unemployed etc. When you have exceeded the maximum credit allowed by banks, some will even resort to loan shark loans for the additional funds available.

Nowadays, you can find loan sharks operating on the internet and they are also just a click away. Such high risk personal loans can cost around 400% APR for a $200 to $2000 cash loan. Yet, many people are willing to borrow at such rates. You may not feel that way, but when you are jobless or unemployed, how else are you going to borrow money fast? What if that $500 loan can get you a job and tide you over until the new pay check arrives?

Although many state government are not in favor of high risk consumer loans, they are still made available because of the apparent demand. Instead, many states impose limits on the loan APR, fees and maximum loan amount etc in order to protect consumers from ending up in debts. So if you really need to borrow money despite bad credit, go with real lenders that are regulated by the law.

How to Avoid Loan Sharks
* Refrain on unnecessary spending and do not buy on credit.
* Plan your budget and always put aside some money for savings, even if its only 5% of your monthly income. Record your major expenditure groups, so that it is easy to pinpoint where you have been spending too much on, such as entertainment and social leisure.
* With some savings, you have a cash reserve to tap on without resorting to loans.
* If you need help managing your expenses, there are many free consumer advisory services that can advise you with personal spending problems.

Usury loans tend to be the biggest problem when it affects the low income social group. When you are already facing financial difficulties for daily expenses, additional debts at high APR is not exactly a solution. Seek financial assistance from the government or not-for-profit organizations as there may be free grants or food vouchers to help you out. It will be best to avoid loan sharks and choose a debt free way to get some money.

Posted April 23rd, 2012. Filed under Bad Credit Loans

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