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How to avoid loan sharks in Australia

Pro tip: always check if your lender has a credit license listed on the ASIC register before applying.

It’s a situation that sounds all too familiar to many Australians: you need cash urgently to pay an unexpected bill, but your credit history means it’s impossible to get a loan from a mainstream lender. So when a loan shark comes along and agrees to give you fast and easy access to the money you need, you’re ready to grab this lifeline with both hands.

But while borrowing from a loan shark might seem like a short-term solution, it can soon lead to long-term financial pain. Finance from loan sharks comes with some pretty big strings attached, including high interest rates and high fees, so it’s crucial for your financial health that you avoid these lenders at all costs.

⚠️ Warning about Borrowing

payday-warningDo you really need a loan today?*

It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

Check your options before you borrow:

  • For information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor
  • Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan
  • If you are on government benefits, ask if you can receive an advance from Centrelink: Phone: 13 17 94

The Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.

* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.

What is a loan shark?

A loan shark is an illegal lender. When someone has poor credit history and doesn’t qualify for financing from a reputable bank or lender, they may turn to an unlicensed lender for help. But while the loan shark offers might seem okay on the surface, it will usually come with an exorbitant interest rate and hidden fees that can end up costing you a whole lot of money.

The term “shark” refers to the predatory nature of these types of lenders, who prey on vulnerable borrowers when they are desperate for money but can’t get financing from a legitimate lender. Low-income families, people on Centrelink and people with limited financial knowledge often make prime targets for loan sharks.

A 2011 study conducted by the Centre for Social Impact at the University of NSW found that more than 15% of Australian adults have limited or no access to basic financial services such as a transaction account, a credit card or insurance. It’s this sort of exclusion from mainstream financial services that makes them easy targets for loan sharks.

While most people might expect to find a loan shark’s office down a dark alley in a seedy part of town, in the modern world many of these unscrupulous lenders ply their trade on the Internet.

How can you tell a loan shark from a legit lender?

Sometimes it can be hard to tell whether a lender is completely above board or not, especially when applying for a loan online. So what sets a loan shark apart from a legitimate lender? There are a few key telltale signs to keep an eye out for.

A legitimate lender will be properly licensed to offer credit under the National Consumer Credit Protection Act 2009, which also requires those lenders to comply with responsible lending requirements. When considering a loan from a lender, check to see whether the lender has a credit license listed on the Australian Securities and Investments Commission (ASIC) register. A loan shark will not be, so if they can’t or won’t show you a credit licence then you should look elsewhere.

Loans from loan sharks are also typically characterised by a few key features. One of these is much more relaxed borrowing criteria than the restrictions imposed by major lenders, with finance for borrowers with bad credit a big selling point. Another is fast and easy access to funds, with applications typically processed online and money available within a very short space of time, sometimes as little as an hour. To a desperate borrower with bad credit and an urgent need for cash, these features can make financing from a loan shark seem like an attractive deal.

What happens if you borrow from a loan shark?

If you borrow from a loan shark, you should expect severe financial consequences. While in the short-term you’ll enjoy the relief of getting the money you need, if you miss repayments then the amount you owe is likely to rapidly increase. By taking advantage of desperate borrowers, loan sharks can impose high interest rates on people that have little choice but to accept the rate on offer.

Fees and charges pose another major problem. Some lenders will charge a flat fee equal to a certain percentage of the amount you borrow and are likely to charge you with further fees if you don’t keep pace with the repayment schedule outlined in your contract. If you don’t pay the loan off in time, you could be charged a fee for every day the account is overdue. Monthly account-keeping fees and a range of other hidden charges may also apply, all of which can lead you deeper and deeper into debt.

And being in debt to a loan shark is not a good place to be. From repossessing your personal items to violence and intimidation, loan sharks may resort to all manner of illegal methods to recoup any money you owe.

Finder survey: How many Australians currently owe money to someone other than a formal lender?

Source: Finder survey by Pure Profile of 1016 Australians, December 2023

What other financial help is available?

If you need help with your finances, you don’t need to turn to a loan shark to get the assistance you need. A good place to start is the National Debt Helpline (1800 007 007), a free nationwide hotline to help people struggling with debt access expert advice.

They will put you in touch with a free financial counselling service in your state. Financial counsellors offer independent and confidential advice on ways you can improve your financial situation and bring your debt under control. They can help you negotiate new repayment arrangements with your creditors as well as work out a budget to organise your finances.

You can also search for a financial counsellor near you on ASIC’s MoneySmart website.

Payday loan alternatives

Compare a range of legitimate short-term loans

While short-term loans (often called payday loans) aren't an ideal solution either, they are arguably better than a loan shark. Before applying for any kind of loan, make sure you fully understand the fees, terms and conditions.

Name Product Maximum loan amount Term of Loan Turnaround time Arrears Fee Costs Fortnightly Repayment (for $1500 Loan)
Sunshine Short Term Loans
12-20 weeks
30 minutes - conditions apply
20% of loan amount + 4% of loan amount each month
A small loan up to $3,000 that you repay over 12-20 weeks. Loans approved and funded in as little as 30 minutes. Centrelink must not be your primary income
Fair Go Finance Small Loan
3 to 12 months
24 to 48 hours
Establishment Fee of $60 – $400
A small loan between $500 and $2,000 that can be funded in 24 hours.
Credit24 Short Term Loan
4 to 12 months
Same day - conditions apply
20% of loan amount establishment fee + 4% of loan amount monthly.
Credit24 offers this loan up to $2,000 and gives you 12 months to repay. Centrelink borrowers are considered as long as Centrelink payments are not more than 50% of income.
Safe Financial Small Loan ($500 to $2000)
13 to 50 weeks
Same day - conditions apply
20% establishment fee + 4% monthly.
Borrow from $500 to $2,000 with same-day funding and no early repayment fees.
Fundo Small Loan
13 to 26 weeks
Same day - conditions apply
20% of loan amount + 4% of loan amount each month
Borrow up to $2,000 and pay it off over 20 weeks. Same day approval for eligible borrowers.

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