A standard plot device is some poor slob borrowing money from a loan shark and then running for his life because he can’t repay. My question is why would anyone lend this person money, even at exorbitant interest rates, when he has no prospect of ever repaying?
Suppose I was a criminal type with a lot of cash and no compunction about “taking care” of people who default. I lend someone $20,000 and expect to be repaid $25,000 on Friday. He doesn’t pay. I have him taken care of. Net result – I lose $20,000.
I know criminals aren’t necessarily the brainiest people in the world but they could surely figure out that that is a bad deal for them. Sure, the rates they charge make a little more risk acceptable, but you still wouldn’t lend large amounts to someone unless he had some prospect of being able to repay. Just because your client is really, really scared (motivated?) doesn’t mean his ability to get ahold of cash is improved.
So – is this just Hollywood? Or do loan sharks really lend large sums to two-time losers?
“non sunt multiplicanda entia praeter necessitatem”
– William of Ockham
Good question. I think real loan sharks are probably a little choosier than they might be portrayed. For one thing, many loan shark victims have family and friends who might not be happy to loan them money, but who might change their minds if they thought the victim was really gonna get killed or beaten up.
Also, I don’t think the sums are usually that high. It’s probably just some silly schmo, who thinks he can afford a Porsche loan on his janitor’s salary, and then his rent comes due. So he goes down to his friend Matt “the Bat” Sharkus, and asks for $600 to make the rent. He wants to pay it back “just a few weeks late”, so Matt shows this poor schmo his bat, and so the schmo goes to his Aunt and explains his situation.
So sometimes the loan sharks live off the friends of their victims.
It is the threat of harm which makes people repay their loans. If Louie is said to have once hooked someone up to a car battery by the testicles before dumping him into a concrete pylon in the construction site downtown, Louie’s clients are far more likely to pay up on time.
I’d guess that a lot of sharks haven’t had to do anything really severe and that the iron hand they rule with is helped by a few well-placed tall tales.
That, combined with the high interest rate, makes it a highly profitable, if illegal, business to partake in.
Also, it’s like when McDonalds has to throw away some burgers. If you have to kill someone because they defaulted on a loan, well, chalk it up as the cost of doing busines…
On the other side of the transaction, I believe that the only people who are willing to go to a loan shark are those who are convinced they’ll have the repayment, and vigorish, easily in hand by due date.
The movie Get Shorty has a pretty good treatment of this question. Granted, it’s still a movie, but Travolta, who plays a loanshark, talks about this question.
He doesn’t want to kill his “customers” because dead people can’t pay. However, he’s not above breaking a few legs to set an example.
I actually know a couple of loansharks. They carry a lot of bad debt, and don’t collect all of it. Unlike the movies, they’ll ususally give a guy a LOT of lattitude in repayment (maybe moreso than banks). The threat of violence is there somewhere buried in the background, but unstated. For instance, one guy I know will once in a while sell a debt to a ‘collector’ and some bike gangs make a partial income this way.
Usually they don’t have to resort to violence. They’ll start wrecking your property, showing up at your job, etc.
It is sometimes also useful to have some people indebted to you. They may be willing to “work off” some or all of the debt by performing tasks that might otherwise be distasteful to them. They are also thereby further and differently indebted. Like any business, those who manage their resources the best last the longest.
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Somehow, I doubt the vast majority of loan sharks anticipate someone who didn’t have $20,000 being able to pay back $25,000 five days later. More than likely, they’ve got you paying back your $20,000 over a 10-year period to the final tune of $60,000.
Down here we call loan sharks car dealers. The people expect $80,000 for their $20,000 are known as mortgage companies; the sharks who are looking for $125,000 are known as Sears.
“There will always be somebody who’s never read a book who’ll know twice what you know.” - D.Duchovny
Loan sharks are businessmen. If they figure you will never be able to pay back your loan (or provide an equivalent repayment) they won’t loan you the money.
However, as others have pointed out, they are capable of giving defaulters a lot of motivation to find the money they need to repay the debt. For example, they might suggest you go someplace public to establish an good alibi next Tuesday while they set fire to your house. You collect the insurance and hand it over to the loan shark. You wouldn’t be willing to make this kind of deal with a bank, but a bank wouldn’t give you the alternative of having your house set on fire with you and your family inside.
Boris B pointed out that this extra motivation can also be applied to relatives and friends. They might not be willing to give you money to buy a new Porsche, but they might do so if it’s a case of “their money or your life”.
Another alternative is to coerce you into a criminal act. Let’s say you owe a loan shark $20,000 and have no way to repay it. The loan shark might tell you you’re going to be making some flights down to Columbia and bringing some packages back to the US on your return flight. If you get caught, too bad for you. If you aren’t caught, your debt will be considered repaid. Of course, you have to hope he honors his end of the bargain.
Finally, if you can’t repay your debt in any other manner, you can always serve as example to others. Your loan shark may decide to kill someone who owes him $2000 every once in a while. While he loses the $2000, the people who owe him $50,000 feel a renewed desire to pay off their debts.