The act of loan sharking is providing unsecured loans to someone. However, the loan shark, who is the lender of the loans, uses an illegal method of charging high interest on the unsecured loan. The interest rates that are used are illegally high. However, the high interest rates are not the only aspect of loan sharking that is illegal.
If an individual cannot repay the loan when they are supposed to, a loan shark will often use the threat of physical violence to retrieve the money. If a threat does not work, then actual violence will often be used to obtain the money owed. Like a bank, a loan shark may confiscate one's property from them as a means of retrieving the money. Unlike a bank, a loan shark will confiscate these things using the threat of violence or by committing violence against the person. A loan shark will also be willing to take things like jewelry, while a bank will not.
A loan shark will primarily operate in poor and low income neighborhoods. People with low incomes living paycheck to paycheck are more likely to need a quick emergency loan. They are also unlikely to qualify for a bank loan. That's where the process of loan sharking comes in. A loan shark will feed off of the desperation of low income individuals who are more likely to be in need of emergency funds and unable to access a loan from anyone. The interest rates are so high that a loan shark may charge a 100% markup at times. The loans are usually small and meant to pay for things like food or rent.
There are different types of loan sharks, and they do not usually work with low income families. A loan shark who is a member of an organized crime family will often make a lot of money by loan sharking to individuals who have more money at their disposal. A person may be borrowing money to use for a number of things including gambling or business investments.
The amount of money that is borrowed from a loan shark involved with organized crime is usually much higher than the money that a loan shark working in low income areas lends. It must be paid back on a schedule that is set up by the loan shark. The interest rates are also incredibly high. If a borrower does not pay a loan shark involved with organized crime when they are supposed to, the borrower will almost definitely be injured or even killed.
Loan sharking is illegal because of the ways that the money must be paid back. The illegally high interest rates and possibility of physical violence may not stop someone who feels that they are desperately in need of money. However, becoming involved with a loan shark is a dangerous action.