Protecting yourself from loan sharks at university

Loan sharks are known to target young people and as a university student, you're prime bait. Here's how you can identify loan sharks and why you should avoid borrowing from them.

Credit: Khosro (woman), 2M media (sharks) – Shutterstock

Unfortunately, many students struggle financially at university and need to find alternative sources of income.

Our Student Money Survey shows that for many, this will involve getting a part-time job, using your student overdraft, or borrowing from your parents.

However, for some, this isn’t possible. Though there are many alternative sources of funding available to students, many don’t know about them or feel like they have maxed out every option. This is where it can be easy to fall into the trap of a loan shark.

Loan sharks are not always the easiest people to identify. This guide talks you through how to recognise one and the dangers of borrowing money from a loan shark.

What is a loan shark?

Loan sharks are unauthorised money lenders. They tend to prey on those who are struggling financially and have nowhere else to turn, and will often charge very high interest rates, leaving the lender in a constant spiral of debt.

When you're struggling financially, it can sometimes be difficult to identify who is a loan shark and who is genuinely trying to help you. If you're feeling desperate and there's what seems like an easy solution to your debt worries, it can be easy for your judgement to become clouded.

Recent statistics from Stop Loan Sharks, a government agency investigating and prosecuting loan sharks, state that around 57% of people they supported in 2024 believed the lender was their friend when they borrowed the money.

Now we're not saying that every close friend or family member who offers to lend you some money is a loan shark. But if you're at university and a friend is offering to lend you money, you should stop and think before diving in.

If you have any doubts at all or you don't know the person that well, it's best to avoid borrowing from them.

How to identify a loan shark

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Here are a few signs to look out for if you're worried you could be borrowing from a loan shark:

• No paperwork – borrowing money without having to sign any kind of agreement with details about the loan is a tell-tale sign that this is an unauthorised money lender
• Cash loans – loan sharks often like to deal with cash, though bank transfers are becoming more common
• Unaffordable repayments – loan sharks usually charge extortionately high interest rates, making it very difficult for you to pay off the debt
• Asking for possessions for security – a loan shark may demand you hand over possessions such as your passport or bank cards as security for the loan
• Intimidating or threatening behaviour – if you can't make the repayments, a loan shark may use threatening or violent behaviour
• Lending to more than one person – if the person you're lending from seems to be loaning money to multiple 'friends', this could be a sign they're a loan shark.

Dave Benbow, Head of the England Illegal Money Lending Team, the national body that investigates and prosecutes loan sharks and supports borrowers, said:

Illegal lenders may seem friendly at first, offering a favour, but things can turn nasty as they demand repayments of much more than they lent out. If you can’t make the payments, they may use threats and violence to force you to pay.

“University life should be a time to focus on studies and social life, and students shouldn’t have to be worrying about repaying these ruthless criminals.

Loan sharks sometimes pretend to be door-to-door lenders, visiting your home to offer a doorstep loan.

Though doorstep lenders also offer cash loans with high interest rates, they are authorised lenders. Doorstep lenders, or any type of money lender in the UK, must be authorised by the Financial Conduct Authority (FCA).

To check if a money lender is authorised, you can check the Financial Services Register. If they don't appear on the list, you should steer clear.

Are loan sharks illegal?

The answer is simple. To legally loan money in the UK, a lender must be authorised by the FCA. Therefore, if a money lender is not, then they are acting illegally.

On top of that, whether authorised or not, it is illegal for any money lender to threaten or harass you to pay back a loan. With no contract or agreement and no FCA authorisation, the loan itself is illegal.

Loan sharks operate outside the law, so they can also be involved in other illegal activities. In more extreme cases, lenders have been forced into prostitution or drug dealing to pay off loans.

What happens if you don't pay a loan shark?

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Loan sharks often charge extortionately high levels of interest, making it extremely difficult to make the repayments on a loan. If you're struggling to pay the loan, they may then use threatening behaviour to pressure you to take out further loans to cover the costs. This can leave you in a situation that feels impossible to get out of.

Loan sharks may also threaten to report you to the police. It's important to know that you have done nothing wrong. It's not illegal to borrow money from someone.

What is illegal is lending money to somebody without the authorisation of the FCA. Loan sharks have no legal right to collect money from you, and you don't have to pay it back.

That being said, it's not a good idea to stop or refuse to pay a loan shark without first getting some help.

How to report a loan shark

If you think you have borrowed from a loan shark, you can get help from one of the following organisations:

• England – contact the England Illegal Money Lending Team by Tel: 0300 555 2222, Email: [email protected] or visit the Stop Loan Sharks website to report anonymously
• Wales – contact the Wales Illegal Money Lending Unit by Tel: 0300 123 3311, Email: [email protected] or visit the Stop Loan Sharks Wales website
• Scotland – contact the Scottish Illegal Money Lending Unit on Tel: 0800 074 0878 or visit Trading Standards Scotland
• Northern Ireland – contact the Police Service of Northern Ireland Illegal Money Lending Team on Tel: 028 9070 0563 or Email: [email protected].

These organisations will let you report a loan shark anonymously over the phone or through an online form. Once you have made a report, their investigators will start to put a case together against the illegal lender.

Alternatives to loan sharks

If you're struggling financially at university, there is more help out there than you may know about. Here are some of the best alternatives to loan sharks if you're struggling with debt at university:

1. Join a credit union

   Credit unions offer small loans at affordable rates to those who may have been turned down for credit elsewhere. They are non-profit money-lending organisations that are set up independently by a community and provide a safe and ethical alternative to loan sharks.

   By cutting out commercial money-lenders, credit unions can keep rates low and offer support to those who would normally struggle to get accepted for bank loans.

   To take a loan out with a credit union, you will need to find a 'common bond' with other members of the union. This could be a religious or ancestral link, or simply living in a certain geographical area.

   You can find a credit union near you through the website and check if you're eligible to join.

   Dave Benbow, Head of the England Illegal Money Lending Team, explains:

   “If you do need a loan, then credit unions offer a safe way to borrow and to save. But if you have found yourself in the clutches of an illegal lender, get in touch with our team for specialist support.

2. Ask your university for a hardship fund

   

   Universities have emergency hardship funds available for those who have run into financial difficulty by no fault of their own. These funds will not be available to you if you've got yourself into debt by spending too much going out or by refusing to budget.

   However, if you've got into debt because of an unexpected event that wasn't your fault, such as suddenly being made redundant, or having to travel home for an emergency, your university can help.

   Each university has its own criteria for what makes you eligible for a hardship fund, but it's always worth contacting them first to check. Not only do hardship funds not accrue interest like a loan from a loan shark, but most of the time, they don't need to be repaid, so the amount you could be saving is huge.

   You can check out our full guide for more information on applying for hardship funds.

   There are also quite a few unusual bursaries and grants that you may find you're eligible for.

3. Use your student overdraft

   We're sure you already know, but student bank accounts offer interest-free overdrafts during your time at university. The amount you receive varies between banks, but some offer overdrafts of up to £3,000.

   Often, the 0% overdraft you receive with your student bank account will start with a lower limit. If you want to increase it, you'll need to ask, as it doesn't happen automatically. So make sure you contact your bank to see if there's any more of that 0% overdraft available to you.

   If you realise the overdraft offered with your student bank account is low compared to others, you should consider switching accounts to get the account with the biggest overdraft available.

4. Seek professional advice

   There are many charities and organisations that exist specifically to help people who are struggling with debt. They have specially trained staff who will have knowledge of the best options out there for you to get yourself out of debt.

   These organisations are the best to turn to if you're a student looking for debt advice:

   • StepChange (Tel: 0800 138 1111)
   • National Debtline (Tel: 0808 808 4000)
   • Debt Advice Foundation (Tel: 0800 043 4050).

    

Student Loans offer the best terms when it comes to supporting yourself financially through university. Check out our guide to student finance myths debunked to make sure you know the facts.