For many Hispanics living in the United States, it is difficult to obtain credit from a bank. If you apply for a bank loan, you may be denied because:
- You have no credit history in the US yet.
- You have had financial difficulties in the past and your credit has suffered
If you dream of owning a home, buying a car, or starting your own business, achieving these goals will not be difficult and costly without creating and maintaining reliable credit. Because it takes time and good financial practice, many Spaniards get instant help from a loan shark.
What is a loan shark?
When you make money, you can hear from people you know: “I know this man who lends money and doesn’t even ask for money.” This person who “lends money” may be a friend of a friend, someone who is a family friend, or even found at a store in your neighborhood. There are many disadvantages to using loan shark services, even if many claim to be legitimate borrowers.
- They charge a weekly rate – what is the real cost of shark loans? The lender will provide you with a weekly rate, not an annual rate. Remember that bank loans and other financial institutions always use annual interest. Let’s look at a typical case: the lender gives you $ 1,000 and you agree to pay 5% weekly interest on that amount. 5% every week means about 20% every month, and multiplied by 12 months a year, the annual interest rate is 260%!
- Payments are confusing – weekly interest rates that don’t seem so high can mean up to 10, 20 and 30 times more interest than you would pay on a traditional loan agreement.
- Loans are difficult to repay – in fact, it is almost impossible to recover. Many people take out loans from these lenders to lose more than they originally invested. If you are unable to pay, your lender may be constantly harassing you or even threatening you with violence. Many people who borrow money from loan sharks lose their business.
- They don’t report to credit institutions – loan sharks sometimes don’t report their loans to credit institutions. To establish, protect and maintain your credit history, you need to make sure that your creditors are actually reporting their loans to credit agencies. If they do not, there is no official record of your loan installments.
- They don’t work within the rules – if you have a complaint, you have nowhere to go because loan sharks don’t have to follow the rules set out to protect you as a consumer.
In general, these types of lenders are best avoided at all costs. If you need money for a business or emergency and don’t have access to a bank loan, try taking loans at ACCION, a nonprofit that provides business and personal loans, and reports to three major credit bureaus.