Having the cash you need when you need it is important. It can keep you out of debt, ensure that your rent is paid, and pay for medical bills. When your credit score is good, financial institutions will loan you the money you need at a good rate. If your credit history is bad, you may struggle to get the funds you need. When people have bad credit, they may turn to pawn shop loans. These loans are convenient and don’t require a credit check.
What are pawn shop loans?
Pawn shops are a great place to pick up used furniture and many people find gems there like a diamond necklace or an antique watch. In addition to selling off people’s unwanted goods at a discounted price, pawn shops offer loans. You may be able to get a great deal on used goods at a pawn shop, but they aren’t the place you want to go to shop for your next loan.
When you need cash fast, you can bring in an item of value to the pawn shop and they will use it as collateral for the loan. This could be a piece of jewelry, furniture, or electronics that have a good amount of value. The pawnbroker will assess the item and determine its value. Then they will offer you a loan based on the cost of the item and hold onto your items until you have paid off the loan.
This is one way to get a secured personal loan without a credit check. You will end up getting the cash rather fast because the pawn broker isn’t pulling your credit score and evaluating your payment history to determine the terms of the loan.
Why you should avoid pawn shop loans
It is rather appealing to be able to get the funds that you need quickly, but there are many reasons to avoid pawn shop loans altogether. Some of them have shady practices. They don’t value the collateral at its full cost and often charge high interest rates.
Loans are for a small amount
Your collateral items may be worth a lot, but you won’t receive the same loan value. Pawnbrokers are known to give out small amounts than items are worth. Pawn shops lend money at 25-60% of the item’s resale value. For example, if you pawn a necklace valued at $800, you won’t get an $800 pawnshop loan. You may only be able to get a loan for $175.
May lose your collateral
Pawn shop owners repossess collateral when loans aren’t paid on time. You will lose the an estimated $625 based on the value of the necklace. The sentimental value the object has may be worth even more to you.
Pawn shop lenders offer the option of extending the loan’s repayment period. This is a very expensive option. The rates are often high and extra fees are added to in order to extend the loan creating more debt.
Not all pawnbrokers are legal
States have pawn shop loan regulation, but not all pawnbrokers follow the laws as they should. It has been reported recently that many pawn shops are charging more than the 36% acceptable APR rates. They also may be requesting that borrowers sign illegal contracts which deceive borrowers about the price of their loans.
Better loan options are available
Banks don’t offer loans to people with poor credit, a pawn shop loan may seem like your only option. But there are better options. The APR on a pawn shop loan can be as high as 152% or more. A better option is a personal loan. The APR for personal loans ranges from 6-36%.
There are lenders who will loan to people with poor credit. Online personal loans are a much better option in most cases. They can help the borrowers build their credit as they make their payments on time. These payments are often reported to the credit bureaus. Online loans will often have longer terms than pawn shop loans which allows you more time to repay the loan.
Don’t use a pawn shop for your loans
Before you pawn any sentimental item for a loan that is a fraction of the value, educate yourself on pawn shop loans. Make a choice that will benefit your financial health and help you pay off the loan. If you need a loan to get cash fast, Jora can help. Apply today to get started.