Pawnbroker Loans 101
Pawnbroker Loans 101
Pawnbroker Loans 101Pawn brokering is a practice that dates back to ancient China, more than three thousand years ago. Although this form of lending has a deep rooted history, it did not really become popular until the 1800s in Britain. It was at this time that people really began to appreciate how fast cash could be obtained, with very little effort. Pawn brokers had a bit of renaissance in the 1980s and 1990s due to recessions, employment issues, and general money problems. Today, with the economy still in a bit of an uncertain state, people are once again turning to their neighborhood pawn brokers for help.
A pawnbroker loan works on a very simple premise: money is lent to a customer who provides a piece of collateral (such as jewelry, antiques, appliances, vehicles, etc.). The valuation of these items tends to be on the conservative end, in order to protect the lender in case the borrower defaults on the loan.
Since there are no credit checks, and no other requirements on the part of the borrower other than presenting an item for collateral, pawnbroker loans are quite fast and simple to obtain. While they may be relatively easy to get, these loans often come with high interest rates, to the tune of anywhere from eight to fifteen percent per month. Even though this may seem high, the interest is still much lower than other types of fast loans, such as payday loans.
The process for getting a pawnbroker loan is simple: the borrower brings in an item, the pawnbroker assess its value, and makes an offer. There may be a bit of negotiation process, and once agreed upon a price, the loan is issued. Different brokers have different terms, but typically the borrower has anywhere from thirty days to six months to repay the loan. If the borrower fails to pay back the money, the collateral will be sold, and the pawnbroker will keep the proceeds.
There are many distinct advantages of pawnbroker loans, as shown below:
Convenient: As long as a person has sufficient collateral, there is minimal paperwork, no credit checks, and the transaction is completed in a matter of minutes.
Pawnbroker Loans Do Not Affect Credit Ratings: Should you default on the loan, the pawnbroker simply sells your item. There is no reporting to credit bureaus, so no bad rating will be logged.
Flexible: Pawnbroker loans are quite flexible in terms of the amount borrowed and the time period for repayment.
Inexpensive Compared To Other Funding Options: Cash advances on credit cards, and payday loans can come with hefty interest rates that can compound quickly. Pawnbroker loans offer lower rates in comparison and typically spell out the terms clearly in advance.
As with any type of loan, there are also several disadvantages to pawnbroker loans, such as:
High Interest Rates: While lower in comparison to other types of loans, the interest rates are still quite high. Even on the lower end, eight percent per month annualizes out to a rate of about 125% per year.
Low Appraisal Rates: Pawnbrokers typically undervalue your wares by as much as thirty to fifty percent. This is done as a way to ensure a profit in the case of a default.
Receipts Get Lost: If you lose your pawn receipt, you cannot claim your goods even if you have the money to repay the loan.
Default: If you do not pay back the loan in full by the agreed time, your items will be sold. If for some reason the pawn broker cannot sell the item for the price of the loan, the borrower will still owe the difference.
If you have no choice but to find a source of fast, short term cash, without the need for credit checks, pawnbroker loans are probably your best bet. These loans should always be paid back promptly, and should never be used as a source of long term funding.