A pawn shop is a great option when you are in need of quick cash loans. They are easy to approach and offers instant loan without any hassle. Taking a loan from pawn shops can be tricky at times but if you are aware of the pros cons, it is very safe and easy. Pawn shop agents verify the collateral’s value and offer you the loan. You sign an agreement and decide on the loan term. That’s it! Your loan process is complete.
Isn’t it a very convenient way to get loans? Hold on; don’t be too quick to reach to your nearest pawn shop. You must know the ins-and-outs properly before taking a loan from here. Like every other good opportunity, there are some advantages and disadvantages of this collateral loan. Let’s dig in deeper.
Advantage of collateral loans from pawn shops
1. No credit check
Pawn brokers don’t care much about your credit score. All their interest is in the security deposit. Pawn shops inspect the collateral value and then decide what amount to lend. In the name of documents, all you have to submit is your government authorized identity proof for the agreement. The loan term is mutually decided.
2. Interest rates are lower than other options
Usually, loan rates are higher than bank interest rates. But if you compare the rates with the other traditional loan options like payday and title loans, this is a cheaper option. In case of bad credit or no credit score, pawn shop loan is better than the bank loans too. As they charge higher interest rates on low credit loan applications.
3. Instant Approval
A pawn shop loan is quick in terms of the loaning processing time. Generally, bank process is a time-consuming process. As soon as you get in touch with a pawn shop for a loan, your process starts and, within a few hours, you get the final amount along with the agreement papers.
Disadvantages of collateral loans from pawn shops
1. You may be stuck in the debt cycle
Loaning period is shorter than normal loans. Therefore, there is a high probability that you might fail to return the loan amount according to the agreement. Fortunately, you can negotiate and get an extension. However, it adds extra interest to your loan that makes the final payable amount even higher. Sometimes, people end up paying much more than their collateral value. So, be aware of it.
2. Extension interest rate is higher
Like mentioned above the extension interest rates are way too high. Money lenders here are in a win-win situation as they have the collateral and adding interest both. The borrower suffers if he/she fails to clear the debt within the agreed time period. So if you are planning to take a loan from a pawn shop, return the money as soon as you can.
3. The loan amount is always less than the collateral’s value
One of the biggest disadvantages of borrowing money from a pawn shop is that the loan you receive is very less than the collateral’s value. Also, the loan approval depends on the value of the collateral you have. Hence, pawn loans are useful for short term and smaller loans only. The bigger the loan amount the higher collateral is required.
4. In case of fail, you may lose your expensive stuff
Your collateral is at risk in case you fail to pay back. If the collateral doesn’t hold the special attachment, you don’t have to worry much. But if it is very special to you, remember to fulfill the agreed terms without any miss. A single mistake can lose you the collateral item.
Pawn shop loan is safer than many other private financing. But they sure have some drawbacks too. Consider both sides before jumping in. Also, choose a reputable pawn shop; if you do your research the better expediency you have.
Daniel Clark is a professional blogger who loves to write on numerous topics from businesses for sale, property fair, Cash loans, technical topics, business pawn loans etc.