But loans for these activities (such as a loanshark) have their own set of risks that have to be factored in and affect the interest rate:

- You may have no legal recourse and no collateral to seize

- The loan may be funding risky or illegal activity with a high likelihood of failure, which demands a higher interest rate

- There may be no competition that drives the price down

Ceteris paribus, increasing the cost of non-payment should reduce interest rates. If you relax the "ceteris paribus", then all bets are off.

Another way to see this is this question: if the lender had to forsake the threat of violence, would the loan price go up or down?