Licensed Payday Lending vs. Loan Sharks – Which Best Serve the Borrower?

The Office of Fair Trading (OFT) strongly advocates against use of loan sharks – unlicensed moneylenders – under all circumstances. Why? Several reasons are cited on the bureau’s website:

• Loan terms are by definition very bad. They are in business to make money off of individuals who are unable to find loans through traditional lenders.
• Loan sharks are known to use extortionate and sometimes violent means to extract paybacks.
• Loan sharks might sometimes change the terms of the loan after it is made, as there is no legal check on their business practices.
• Loan sharks often offer second loans at even worse terms to help the borrower repay the first loan – digging the hole deeper, so to speak.

The key difference between a loan shark and legitimate lenders is the shark is unlicensed. Without a check against licensing criteria, that individual is more likely to operate in illegal ways that amount to usury.

A payday loan is quite different. The lender adheres to laws as enforced by the OFT. It is a legitimate business that operates in the open, where public and regulator scrutiny can check its business practices and follow up on consumer complaints. Lending terms are clearly defined and limited by law, as are repayment terms. Features of payday loans include:

• Online applications, which clearly define the terms of the loan and allow the borrower to shop among different payday lenders
• Electronic deposit of loan money, providing a clear record of the transaction and ensuring immediate delivery of legitimate cash (not counterfeit, as might happen with a loan shark)
• Ensured privacy, sharing of no employment or banking data with third parties

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