Sharks are on the prowl in South Africa

Amid the challenging economic situation in South Africa, many are turning to illegal lenders, A.K.A. loan sharks, to make ends meet.

Loan sharks usually target vulnerable consumers who lack access to traditional banking services and are becoming more creative in their scams.

“With the complexities and high costs of compliance driving many legitimate microfinance institutions out of the market, a void has been created that illegal lenders are quick to fill,” says Leonie van Pletzen, MicroFinance South Africa (MFSA) CEO.

“It’s crucial for consumers to recognise the signs of these predatory practices to protect themselves,” added Niresh Gopichand, Atlas Finance Risk Director.

Gopichand said that loan sharks demand upfront payments and charge excessive annual interest rates, trapping individuals in a cycle of debt as repayments become overwhelming.

Van Pletzen said that consumers should verify the legitimacy of a microfinance lender, which can be done on several platforms, including the National Credit Regulator (NCR) website,

Gopichand also shared five essential tips for spotting loan scams:

• Unrealistic guarantees for approval are a sure red flag. Consumers should be wary of lenders who promise guaranteed approval without assessing their creditworthiness. Legitimate credit providers evaluate a borrower’s financial standing before granting a loan.

• Loan sharks use the trick of requesting upfront fees or hidden costs in the fine print. Reputable lenders deduct fees from the loan amount or include them in the repayment terms.

• Scammers often use high-pressure tactics, which push loan seekers to act immediately or risk losing out. Legitimate lenders offer time and information for decisions.

• Ignore unsolicited loan offers via email, text, social media, or phone. Legitimate lenders do not use such tactics.

• Vague or missing contact information is a sign of fraudsters who avoid listing contact details to evade responsibility. Legitimate lenders will operate from verifiable locations.

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