Beware of loan sharks in difficult economic times for consumers

Consumers are warned to beware of loan sharks in the current difficult economic times as illegal lenders, commonly known as loan sharks, are on the prowl in South Africa. As consumers become more vulnerable as they try to make ends meet, loan sharks are becoming more creative in their loan scams.

Leonie van Pletzen, CEO of MicroFinance South Africa (MFSA), confirms the proliferation of unscrupulous lenders who exploit consumers who are in urgent need of financial assistance but lack access to traditional banking services.

“With the complexities and high costs of compliance driving many legitimate microfinance institutions out of the market, it created a void that illegal lenders are quick to fill.”

Niresh Gopichand, director of risk at Atlas Finance, says while loan sharks are synonymous with exploitation, they, unfortunately, taint the image of all lenders including registered responsible ethical lenders.

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Beware of this behaviour when it comes to loan sharks

“We understand the growing concerns surrounding borrowing money online as some consumers have fallen prey to loan sharks offering seemingly attractive loans with hidden, exorbitant fees and interest rates. It is crucial for consumers to recognise the signs of these predatory practices to protect themselves.”

He says loan sharks who demand upfront payment, charge excessive annual interest rates, make repayments overwhelming for borrowers and trap consumers in a cycle of debt, leaving them struggling to pay off the loan while amassing additional fees, are on the increase.

Van Pletzen advises consumers to get into the habit of verifying the legitimacy of microfinance lenders which can be done on various platforms, including the National Credit Regulator (NCR) website (www.ncr.org.za) which provides a list of registered credit providers.

In addition, MFSA offers direct verification assistance and encourages consumers to report suspicious activities through its website at www.mfsa.net.

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How to protect yourself from loan sharks

Gopichand says this is how to protect yourself from loan scams:

• Unrealistic guarantees for approval are a sure red flag. Be wary of lenders who promise guaranteed approval without assessing your creditworthiness. Legitimate credit providers always evaluate a borrower’s financial standing before granting a loan.
• Requests for payment of upfront fees or hidden costs in the fine print is a trick used by loan sharks. Reputable lenders deduct fees from the loan amount or include them in the repayment terms.
• Scammers often use high-pressure tactics to rush decisions encouraging loan seekers to act immediately or risk losing out. Legitimate lenders provide time and information for careful decision-making.
• Ignore unsolicited loan offers via email, text, social media, or phone. Legitimate lenders do not use aggressive outreach tactics.
• Vague or absent contact information is a sign of fraudsters who often avoid listing contact details to evade accountability. Verify the lender’s physical address. Legitimate lenders operate from verifiable locations.

“The landscape of microfinance in South Africa faces significant challenges, but through continuous education, support, and stringent verification processes, consumers can avoid falling victim to loan sharks and scams.

“As the battle against illegal lenders and loan sharks continues, our efforts remain focused on ensuring that legitimate microfinance institutions can thrive and provide much-needed services to the underserved population,” Van Pletzen says.