Pawnshop loans are popular for easy access to cash against your items. Here below are details of how pawnshop loans work.
No credit check
At a pawn shop, there are no lengthy application forms to fill. Contrary to conventional bank loans, there are no credit checks either. Further, the availability of cash against the pawned item is on the spot.
Many items qualify for pawning. They include diamond and gold jewellery, electronics, tools, appliances, musical instruments, and many more.
For instance, if you have a gold chain, the pawnbroker will assess and assign value to it. You will then get an offer based on a certain percentage of the said value.
The requirement in the contract then reads that you’ll repay within the set period. A typical pawn loan would have a term of about 30 days. Often, a grace period of one month will also be advanced.
Dangers of pawnshop loans
There are two dangers associated with pawnshop loans. First of all, you will lose the pawned asset should you fail to pay. The monetary and sentimental value at stake could be unbearably high. Consider a gene rationally inherited chain or a wedding ring.
The most dangerous risk is high-interest rates associated with those loans. The compounding is super quick.
Most people who take pawn loans end up struggling to pay them back. They usually end up paying far above 100% of the original amount they had pocketed.
Should you consider pawnshop loans?
A dire need for quick cash might drive you to pawn loans. When options run out, it fast becomes a possible consideration.
However, you must first calculate all the risks and be willing to accommodate the interest rates, in case you are unable to pay back on time. There is no credit bureau risk with pawn loans. All you will have to do is to surrender the asset you pawned.
Try other alternatives first, though. For instance, if where the money is needed is an entity you could negotiate with, consider asking for grace period extensions. You could also take a personal loan, or your salary in advance. Lastly, you could sell something.
Pawnshop loans work by keeping as collateral an item given in exchange of cash meant for repayment. It is a quick and effective way to deal with cash emergencies.
However, it is also potentially dangerous ground to tread on. It is best to avoid these loans and to consider other viable options when hard-pressed for money.
Do not lose your inheritance token or an engagement ring this way as it is hard to recover from the relationship damage ultimately brought about. Only consider pawnshop loans when there is no other way whatsoever.