A
loan shark is a person who offers loans to those in desperate need of
money in a hurry but have no
legal way to obtain it. The
interest loan sharks charge tends to be absolutely exorbitant due to the extreme unlikelihood that the borrower will be able to pay back the loan. The shark also wants it back as soon as possible, since they probably don't have a very large
reserve to dip into. According to a recent
Law & Order episode*, the going rate in
Manhattan is 10% a week, and one is expected to pay off the interest immediately. This works out to over 1000%
APR if
compounded and thus most
borrowers end up in
perpetual debt to the
shark.
Since the rates are well above those set by
usury laws in most
jurisdictions, sharks have to use their own means of coercion for repayment. Often the shark is a member of a larger
criminal organization that helps facilitate
collection in return for the majority of the
vig. Those that operate independently of organized crime in their area may find need to pay "
protection" in order to stay in business.
Interestingly enough, while
the authorities continue to crack down on loan sharks, numerous
legitimate businesses have started in the last decade that offer loans at similar rates. Generally they advertise themself as "
payday advance" loans, where one writes a check for around 10% more than the amount one receives, and
postdates it beyond the next payday. Large
campaign contributions, slick
TV advertisements, and a stated mission of helping out people that are in
dire emergencies have allowed these places to stay in business despite charging as much, if not more, than illegal loan sharks.
*Sure, this isn't the best source, but the producers do strive to be accurate. And it sounds about right anyway.