When in a pinch, people tend to turn to the easiest way they can scourge up some funds. A typical example of this is a person who is in the middle of paychecks, and suddenly need emergency funds for medical reasons or for a family member. This person needs the money right now. To do this, they turn to pawnshops which can give them the cash they need without the wait time.
However, is the pawnshop the only thing that stands between you and financial ruin? Here are five things to consider before you go to the pawnshop to pawn your valuables every time you’re in a financial jam.
How pawnshop loans work
Pawnshop loans are secured by a collateral, an item of value that you have brought in and was appraised by the pawnbroker. The amount of loan you will get is not determined by the item’s actual value, but by how valuable the pawnbroker thinks it may be. A lot of pawnshops appraise the value of items based on their experience. That is not to say that they are experts when it comes to determining the value of a valuable, however. Keep in mind that pawnbrokers will name a price that is how much they would pay for the item if it was sold to them.
If you agree to the price given to you by the pawnbroker, you are given paperwork to fill in. Once everything checks out, you are given a pawn ticket which contains details of the item you pawned, the fees incurred from the shop, how much it was pawned for, your loan’s expiration date, among other pertinent details relating to your lawn.
Contrary to popular belief however, pawnshops are not at all shady establishments. Rather, they are regulated by at least 14 federal statutes and regulations; there are also several state and local laws that each pawnshop has to adhere to. Also, pawnshops have to be picky about the items they do accept because they are prohibited by law from accepting stolen goods. The rules vary from state to state, but generally pawnshops have to work with local work enforcement to ensure that none of the items in their possession were stolen.
What you can pawn
Again, this depends upon pawnshop to pawnshop, but generally, majority of pawnshops accept jewelry, electronics, and other valuables such as collectible coins. Most pawnshops have the ability to authenticate or appraise the value of jewelry, and to ensure that the piece they are buying are legitimate. After all, if the person who pawned the item end up forfeiting the item (or not paying his monthly dues), then the item is defaulted to the pawnshop, which in turn sells it for a profit. If they purchase fake jewelry, then they would only be on the losing end.
It becomes trickier when it comes to electronics. Each pawnshop has its methods for determining the value of electronics, but what they mostly due is just to ensure that the item is in working condition. If the item is therefore released for reselling, they are not to be held liable in case the item stops working for a period of time.
Why you shouldn’t go to a pawnshop
These things being said, going to the pawnshop for a quick buck may be very interesting to you. However, here are some things you have to be aware of when considering a pawnshop loan:
- Pawnshop loans are typically short-term.
Assuming that you were in a pinch, you probably don’t have a stash of emergency funds lying around that can tide you over. Unfortunately, you may have to scrape together a significant amount of cash to get your item back, because most pawnshop loans work on short-term periods. If you pawn something, you can do any of the following:
– Pay back the capital amount plus the interest. If you pawned an item for $100 and the interest rate is 20% per month, then you have to pay $120 upfront to get your item, before your loan expires.
– Pay back the interest to extend your loan for another month, while also incurring additional fees.
– Do nothing, in which case the pawnshop takes ownership of your item and you lose it forever.
These things being said, are you sure that you can find the cash to claim your item once you’re out of your financial knot? If you are unlikely to find the extra cash to get back your item, then the pawnshop may not be the place for you to go to.
- Pawnshops have high-interest rates.
This is very interesting, considering that while pawnshops are regulated state to state, the rules also vary per state. The interest rates can vary from 5% to 25% monthly, with different states setting different caps for the pawnshops in their area. However, they can also add “finance charges” or the charges involving handling your items and other miscellaneous fees. For finance charges, some states allow an additional 20% service charge monthly.
So if you get a loan for $100 and there is a 20% interest charge, you will have to pay $120 on your first month. On your second month, the pawnshop can charge you an additional 20% service charge, which brings your debt to $144.
- You stand to lose your personal items.
Given the stiff interest rates, a lot of people are unable to pay back pawnshops to get their items back. In fact, there is a 50/50 chance that you will be unable to get the money on time to get your items before the loan expires. That being said, you stand to lose your personal items, which can vary from priceless family heirlooms to items of sentimental value to you.
When it comes down to it, going to a pawnshop to get loans are going to be risky if you don’t have a plan as to how you can get your items back. There are, of course, other ways of getting the quick money you need without resorting to pawnshops. Consider Biltmore Loan for your cash needs – we are better than a pawnshop, and friendlier than a bank.