Shylock Money, an Expensive Venture.

Shylock is an investor who takes a risk by lending clients money at exorbitant interest rates. The rates may range between 10% to 50% on a monthly basis.

With such a high interest rate, how does one find himself or herself going to borrow from the shylocks? Occasionally we have had emergencies to be attended to e.g a family member being hospitalized, death of a loved one etc.. Due to lack of savings for emergency to turn to, we try our best to borrow in vain from friends and other sources available to us. Having no other place to turn to, a friend or a relative may introduce one to these “loan sharks”. The shylock gives terms and conditions for lending which in most cases are favourable to his business. He or she ends up taking advantage of client’s desperation and inflates the interest rate. With no other option available, the client ends up taking the cash to use for the emergency.

In comparison with the banks, and other lending institutions, Shylocks are extremely expensive. They charge their interest on a monthly basis as opposed to compounding their interest for the entire loan period.

When it comes to recovering the money owed to them by a client, they recover their interest first. This means that if you borrow $20,000 at a rate of 20%, you will have to pay back $24,000 within the month. If it happens that you are unable to pay the whole amount at once then you will part with an interest of $4,000 for that particular month and still owe them $24,000 payable the following month. A client who is unable to pay principle together with interest at the same time can end up paying for this kind of a loan for the whole of his life.

In a country where I come from, Shylocks take advantage of Bank employees. This is because in the banking sector employees are not allowed to borrow from money lenders or other financial institutions. The “loan sharks” ask for postdated cheques from such clients as security for the money borrowed. 

These cheques are banked as the employees salary are paid into the account. As a result, the shylocks recover their money even before the employee gets something out of his sweat. In cases where an employee is unable to pay the whole amount, they ask for interest in cash and remain with the cheques. An employee can end up paying more than 200% of the principal amount.

The cheques is used to blackmail the employee if he fails to raise cash. They threaten to forward the cheque to employer as prove that they had lent an employee some cash. If such a cheque is presented to the employer, the employee can end up being terminated. As a result of fear, the employee falls into trap and ends up making payments in order to retain the job.

Other forms of security accepted by Shylocks are house hold goods which they end up selling to recover their money.

Think twice next time before you borrow any form of cash from such people.  Alternatively save for emergencies so that you don’t end up borrowing.

emudaho@yahoo.com