Loan Shark: What It Means, Risks & How It Operates

Looking for a quick loan but worried about scams? This space answers your main question — what is a loan shark and shows you how to spot one before it’s too late. Loan sharks still exist in both offline and online forms, including online loan sharks posing as digital lenders. They offer instant cash with ‘no paperwork’ and ‘zero interest’ promises, but at unreasonably high interest rates that can trap you in debt. 

Even if you have a low CIBIL score or were denied a loan by a bank, it’s better to avoid illegal moneylenders and choose regulated lenders instead.  

Read on to learn loan shark meaning, how does a loan shark work and how you can stay safe from them. 

What is a Loan Shark? 

A loan shark is an illegal lender who charges extremely high interest and operates outside RBI regulations. They don’t follow the Digital Lending Guidelines, often skip paperwork, and may use unlawful recovery tactics. 

People usually approach them during emergencies or when they have a low CIBIL score and cannot get approved by banks or NBFCs. While it may feel like an easy solution, it can cause serious financial damage. 

How a Loan Shark Works? 

Here’s a simple breakdown of how does a loan shark work: 

• Easy Trap: They approach borrowers through calls, WhatsApp or social media ads. 

• No Documentation: Loan terms, tenure and interest are not clearly stated. 

• Excessive Interest: They may charge multiple times the legal lending rate (for reference, most banks/NBFCs keep APR below 36%). 

• High Collateral Demands: They may demand security worth more than the borrowed amount. 

• Harassment for Recovery: If you miss a payment, expect threats, social shaming, or even property seizure. 

• Debt Spiral: Many borrowers are forced to borrow again just to repay previous loans. 

How to Spot a Loan Shark? 

Here are red flags to watch out for when looking for a safe loan: 

• ‘0% interest’ or ‘loan without paperwork’ advertisements 

• Offers only cash loans, no bank transfer 

• No clarity on interest rates or total cost of borrowing 

• Rates much higher than legal APR limits 

• Not listed as an RBI-registered NBFC or bank 

• No check of your credit report or credit score 

• Pressure to take immediate action 

• Asking for high-value collateral 

• Poor website or app with no security 

Top Reasons to Stay Away from Loan Sharks 

Even if they seem helpful, here’s why they are dangerous: 

• Exorbitant Interest: You end up repaying far more than you borrowed 

• Debt Trap: Leads to borrowing again and again 

• Hidden Charges: You never know the real cost until too late 

• Harassment: Threats, intimidation, and mental stress 

• Collateral Loss: Your assets may be seized illegally 

• No Legal Recourse: Since they are unregulated, you can’t seek standard dispute resolution 

How to Stay Safe from Loan Sharks? 

Follow these steps to protect yourself from illegal lending scams: 

• Research the lender and confirm they are RBI-approved 

• Check online reviews and ratings 

• Compare APR with other lenders 

• Look for complete transparency on interest rates, fees, and tenure 

• Avoid sharing personal or banking info until you trust the lender 

• Watch for high-pressure tactics or high upfront fees 

• Choose reputable digital lenders or NBFCs 

What Legal Action Can You Take? 

If you have already fallen into a loan shark trap, here’s what you can do: 

• File a Police Complaint: Submit a written report at your local police station 

• Contact Cybercrime Cell: Report online loan sharks through the cybercrime portal 

• Email the RBI: Share screenshots, call recordings, or payment proof 

• Seek Legal Help: Get assistance from a lawyer to stop harassment legally 

To avoid these risks, opt for a regulated lender like Fibe. We offer instant personal loans up to ₹5 lakhs with affordable interest rates, no hidden charges and flexible tenure.  
You can foreclose your loan anytime without penalties. Apply via the Fibe Personal Loan App or website for a smooth and secure experience. 

FAQs on Loan Sharks 

Is loan sharking legal in India? 

No, it is illegal. Loan sharks operate without licenses and outside RBI regulations. 

Why do people use loan sharks? 

Usually due to urgent need or low CIBIL score, but it often results in harassment and huge interest payments. 

Why should you avoid loan sharks? 

Because they charge extremely high rates, use threats and offer no legal protection. 

What is another name for a loan shark? 

They are also known as money sharks or predatory lenders.