A pawn shop is a store run by a pawnbroker, where secured loans are offered to customers who must use an item they own as collateral for the loan. If the borrower can’t repay the loan, the pawnbroker will sell the item in the shop to recoup their losses. In some cases. customers can also choose to sell items to the pawnbroker.
What Is a Pawn Shop Loan and How Does It Work?
No matter how prepared we might be, sudden financial situations will likely happen to most of us at some point. When one of these situations arises, it can be helpful to familiarize yourself with the concept of pawning your objects. Learn what a pawn shop is and how it may help you avoid financial troubles.
A pawn shop is an independent business run by a pawnbroker that allows you to receive a cash loan quickly from personal items. If all goes smoothly, with timely payments on the loan, including the interest rate, you will get the best of both worlds; you will receive convenient cash advance style loan and be able to eventually reclaim your item. No credit check is required.
Are Pawn Shops Safe?
Most pawn shops are well-respected stores that aid borrowers in financial distress. However, the stigma behind the core concept of how a pawn shop functions has kept many people away from using them.
Contrary to what most people may think, a pawn shop is a legitimate business that can be useful when searching for financial aid. This article aims to offer a comprehensive view of all the aspects related to the services offered by pawnbrokers, along with a brief exploration of pawn shop development throughout history.
To help understand the problematic concepts behind pawning and pawn shops, it might be useful to go over the basics. Some of the most common objects that are pawned include antiquities, porcelain, gold jewelry, gadgets, musical instruments, memorabilia, and even firearms. Although pawning might appear as a simple exchange of goods and money, there is more to it.
How Do Pawn Loans Work?
The loan amount that you will be paying off, which is given by the pawnbroker, is based upon the value of the object you pledge. You will need to pay an interest rate set by each pawn shop as a part of their operating policy.
The pawn shop loan issued by a pawnbroker correlates to the assessed value of your item. The interest rates of the pawn loan usually range between 4-8% of the issued amount per month, and the issued principal will typically be one-third of the actual value of the collateral (pawned object), but that might vary based upon the condition of the collateral. How rare the item is will also influence the price.
You might also have to pay for handling charges, which, along with the interest rate, enable the pawnbroker to stay safe if the pawn shop isn’t able to get the loan paid off or sell the collateral.
After you’ve paid off the full credit to the pawnbroker, you may redeem the collateral of your loan with no consequences. If you’re unable to do this within the agreed-upon timeframe, your collateral may become the rightful possession of the pawnbroker. According to the National Pawnbrokers Association about 85% of residents of the US pay back the Pawn shop loans before the loan term is up and redeem the collateral.
If the regulations of your state allow it, there is a possibility to receive some money from the sale of your collateral. You might also buy it back from the pawnbroker, but that’s typically only at an inflated price.
Pawn Shop History
Pawn shops had their start in Ancient China, over 5000 years ago, and they also influenced the economic systems of Ancient Greece. As regulations became stricter in Europe—because of the firm grip of the medieval Catholic church—pawning and pawnbrokers gradually disappeared from the spotlight.
Pawning emerged as an even more relevant source of aid for the poor and a means of financing businesses during the 14th and 15th centuries. As the renaissance movement and the flourishing of trade took Europe by storm, some money-lending families began giving short-term credit to the poor to accumulate wealth at an unprecedented scale.
Pawn shops aren’t just quick money for the poor—even royals resorted to pawning to get precious coins and banknotes. Historians say Queen Isabella of Spain put up some of her jewelry as collateral to finance one of Christopher Columbus’s journeys.
The first modern acts of regulation for pawn shops were established in Great Britain in 1872 to protect pawnbrokers. Today, every state has its own set of regulations. Estimates say around 12,000 pawn shops operate across the US.
Due to the underlying and persistent need for quick cash, opening and running pawn shops can be a successful business endeavor. Pawnbrokers are on the lookout for quick cash from people who intend to receive short-term loans. They would prefer to keep you uninformed about how much they profit from pawn deals.
A pawnbroker isn’t likely to brief you on the drawbacks of their low interest rates and increased loans. Potential drawbacks may be a shorter-term loan or higher handling charges. To lower your risk, ensure that other financial obligations won’t prevent you from returning the pawn shop loan within the negotiated time frame. Also, pawnbrokers might be reluctant to change your established agreement.
What Do I Need to Know When Receiving a Pawn Loan?
It would be beneficial to investigate any important quotas regarding the transaction beforehand, especially for longer-term repayments. Note that you shouldn’t pawn anything you need for day-to-day life.
To find a pawn shop that offers a suitable loan deal, take a stroll around town. Loan quotes may vary depending on the shop’s neighborhood.
Are Pawn Loans the Right Choice for Me?
Although the negative aspects of pawn shops might seem overwhelming, thinking rationally and taking the time to find a respectable pawn shop can still land you a good deal. Pawn shop loans don’t get recorded in your credit history, so they won’t negatively impact your credit score.
Plus, you don’t have to have an exceptional credit rating because a pawnbroker won’t inquire about your employment or credit records. Your basic personal information will be enough to complete the exchange with a pawn shop.
Also, you won’t need a lot of documentation to complete the pawn shop loan agreement like you need when applying for a loan from other financial institutions. You’ll discover that some pawn dealerships have shifted toward online pawn application processes, which makes the entire process easier.
Pawn loans are a good choice if you are looking for cash immediately, but personal loans might be more favorable. CreditNinja makes or arranges personal loans that aim to improve your financial situation. Start your application today and receive the financial support you deserve as soon as the next business day after requesting.