Loan sharks before Christmas: how to spot one, and safer ways to borrow

What's happening

Christmas puts pressure on budgets, and illegal money lenders know it. Stop Loan Sharks, the England Illegal Money Lending Team, says 1.7 million people in England are in debt to a loan shark, and that it has supported more than 33,000 people since 2004.

A loan shark is someone who lends money without being authorised by the Financial Conduct Authority (FCA). Lending to consumers without authorisation is a criminal offence under the Financial Services and Markets Act 2000. Loan sharks often start off as a friend or neighbour offering quick cash, then add charges, take your bank card or threaten you.

If you've borrowed from one, you haven't done anything wrong. Stop Loan Sharks says the borrower "has done nothing wrong" and it's there to help and keep you safe.

At a glance

• Check any lender on the FCA's Financial Services Register before you borrow.
• England: Stop Loan Sharks, 0300 555 2222, text 07860 022 116, or email [email protected].
• Wales: Stop Loan Sharks Wales, 0300 123 3311.
• Scotland: Trading Standards Scotland, 0800 074 0878.
• Northern Ireland: Trading Standards Consumerline, 0300 123 6262.
• You can report anonymously. GOV.UK says you don't have to give your name.

The signs of a loan shark

Stop Loan Sharks lists these signs:

• They offered you a quick loan.
• They seemed like a friend at first, but now you're not sure.
• They said no paperwork was needed.
• They've added extra charges or large amounts of interest.
• They've threatened you.
• You're afraid of people finding out.
• They've taken your bank card, passport or other valuables.

Under section 26 of the Financial Services and Markets Act 2000, a credit agreement made by an unauthorised lender is generally unenforceable against the borrower.

The cost: a worked example

This is an illustration, not a real case. Lee needs £300 for presents. A man at the pub offers it "as a favour", to be paid back at £30 a week. After ten weeks Lee has repaid £300, but the lender says there are "fees" and the balance is still £200. Then he asks for Lee's bank card "to make it easier".

Compare a credit union. In Great Britain, credit unions can charge at most 3% a month on the reducing balance, which is about 42.6% APR, and many charge less. At that maximum rate, £300 repaid over six months costs about £55.38 a month, or £332.28 in total. That's £32.28 of interest, with a written agreement and no threats.

Other places to turn

Before you borrow at all, it's worth a free conversation with a debt adviser. They can check whether you're getting all the benefits you're entitled to, help you prioritise bills, and talk to lenders for you. Your local council may also run a hardship or welfare scheme that helps with food, energy or essential items, and some local charities run Christmas appeals for families with children.

What to do now

1. Don't borrow from anyone you can't find on the FCA Register.
2. If you already owe a loan shark, contact the lending team for your nation. Calls are confidential and you can stay anonymous.
3. Don't hand over your bank card, PIN, passport or benefit details to anyone as "security".
4. Talk to a free debt adviser such as StepChange, National Debtline or Citizens Advice before you borrow.
5. Check a credit union. Many offer small loans and some run Christmas savings accounts.

Questions

Will I get into trouble for borrowing from a loan shark?

No. Lending without authorisation is the crime, not borrowing. The illegal money lending teams exist to help borrowers.

Do I have to keep paying?

An agreement with an unauthorised lender is generally unenforceable. Before you stop paying, call the lending team so they can help you do it safely.

I get Universal Credit. Is there help with one-off costs?

You may be able to get an interest-free Budgeting Advance from the Department for Work and Pensions, which you repay from future payments. Ask through your online account or your work coach.

Ways to save

The best way to avoid borrowing is to keep the bill down. Set a firm limit for each person and look at the budget supermarkets for food. Our Aldi, Lidl and Iceland pages list current offers, and The Works is good for low-cost stocking fillers.

Sources: Stop Loan Sharks, GOV.UK: report a loan shark, FCA Financial Services Register, Financial Services and Markets Act 2000, section 26, Credit Unions (Maximum Interest Rate on Loans) Order 2013