How Does A Pawn Shop Work: Pros and Cons of Pawn Shop | Pawn Brokers

What Is a Pawnshop Loan?

A pawnshop loan is availed through the presence of collateral. The money that is being lent is dependent upon the value of collateral, which are usually jewelries, furnitures, or other items that has value.  Loans are bound with a contract and vary from state to state with an average loan period of thirty days.

Collaterals are redeemed through repayment of loan, which is computed from the principal loan times the interest accrued over the period of time.

How Does A Pawn Shop Work

  • Pawnbrokers grant loans to a customer with the use of collateral that serves as guarantee.
  • The bad credit personal loan is usually in small amounts and is secured by the collateral. So when customers fail to pay the loan in the manner stated on the contract, pawnbrokers will automatically hold in control of the item that was used as collateral and cancel the debt.
  • The amount of loan is taken from the appraisal of the value of collateral, which ranges from 30% to 40% less the prepaid interest of one month.
  • Loans are renewable by paying only the interest accrued for a period of time.

The Pros of Pawnshop Loans

  • Cash is easy, fast, and convenient. It requires no credit check and no co-signers. It only needs the collateral.
  • The borrower’s credit score is not affected in such cases where no payment is made. The property will then be sold appropriately, unlike other loaning methods that exhaust with harassing creditor calls and credit agency report.
  • The money for lease is negotiable. Normally pawnbrokers will offer the lowest amount, but a good negotiating and talking can raise it.

The Cons of Pawnshop Loans

Before taking action, it is best to seek advice and learn the bad sides of loaning in pawnshops. They include the following:

  • Appraisals are low. The pawnshop can get as much as 30% to 50% of the value of the item if it is sold. The borrower will get the wholesale value of pawned jewelry, 60% for guns, 10% to 30% for electrical appliances of their original cost.
  • Interest rates are high of about 120% to 300% annual percentage rate (APR). Some states and countries allow pawnshops to add fees that can accumulate fast.
  • Pawnshops could be a loading place for stolen things and easily catches the eye of authorities. Although stolen goods are difficult to recover since jewelries can be modified, the pawnshop can be permanently halted from its operation.

About the Author

Sandra
I am working as Editor in Chief for Financeninvestments.com. Writing on Financial Topics is my passion. You can find me on , Seeking Alpha Instablogs or join our Facebook Community, s. FNI is a great Community for financial bloggers and writers. Get everything you wanted to know about your finance and investment related matters such as mutual funds, banking, retirement, economics and much more.

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