In the past, pawnbrokers had a bad reputation as services for the poor. If your friends, family, or colleagues see you walking into a pawn shop, they will instantly think you are in deep financial trouble.
But now, their reputation has changed for the better. Pawn shops now look a lot more professional and polished. It’s not just for those in deep financial trouble anymore. Anyone can now easily approach a pawnbroker and get some quick cash.
It’s a bit like borrowing from a licensed money lender but with some differences.
You can borrow money even if your credit score is low
Pawnbrokers are very considerate of low credit scores. As long as you have a valuable possession, the pawn shop can appraise it and give you cash. Most pawn shops give you 60 to 80 percent of the appraised value of your item. The loan amount you get depends only on the market value of your item, not your credit score.
If you’re worried that your credit score might disqualify you from a loan, try going to a pawn shop. All you need to get some quick money is a valuable item, like a watch or a piece of jewellery.
You will not get trapped in debt
When you borrow money from a pawnbroker, the item you bring (called your pledge) is the only thing you can lose if you fail to repay your loan. Many pawn shops hold your pledge for six months before you have to redeem it. Otherwise, the pawnbrokers will sell your pledge at auction.
This way, you will not lose anything more if you still find your self in bad shape financially after six months. Your pledge is the only thing you stand to lose. There are no ongoing interest payments and late payment fees that can stack up and ruin you financially.
Their interest rates are lower
Most pawn shops charge a monthly interest rate of 1% per month. Others would charge 1% for the first month and 1.5% for the following months. They work a lot like loans from banks and money lenders, but the interest rates are relatively lower. Traditional loans charge up to 4% interest per month or up to 6% per year.
Pawn shops can afford to charge lower interest rates because they always have collaterals (i.e. your pledge). They take on less risk financially, as they can recover even if you default on your loan. All they have to do is sell off unredeemed pledges at auction.
If you have items you can use as pledges, then pawning them is a good and easy way to get some needed cash. But if you don’t have any valuable items, or you consider them too precious to risk as pledges, then loans from licensed money lenders are the better choice for you.
Weigh out the pros and cons of each kind of lender first before making a decision. This way, you can maximise your loan and not lose too much money on interest payments.
Pawn shops have much better reputations than before. They have become good choices to get some quick cash. All you need is a valuable possession as a pledge, and you can get up to 80% of its market value for your loan. And if ever you cannot pay off your loan after six months, all you will lose is your pledge. That will be the end of your debt. Otherwise, you can redeem your pledge to get it back.
Pawn shops may not be the best choice for you if you have no valuable possessions to pledge, though. In these cases, licensed money lenders can still be helpful. It pays to evaluate the pros and cons of each first before making the choice.