Have you walked into a pawn shop lately? The visitor numbers are up and it isn’t just people needing a quick buck who are walking through the door. It isn’t just the cash advance and payday loan businesses seeing an influx of customers, secured pawn shop loans are seeing an increase in merchandise for sale which reflects how negatively the loans are panning out.
How are pawn shop loans different from a cash advance?
They may both be no credit bureau check money opportunities when there is a desperate need for quick cash, but the tow options are clearly different by definition and practice.
- A loan at a pawn shop is secured. Property is used to establish the loan amount and it is then held as collateral for repayment. Cash advances are unsecured loans based on take home income.
- A pawn shop will give 30 days to repay the loan whereas a cash advance lender will give about 14 days (on average).
- The loan amount for a pawned item will be a fraction of the street or fair market value. The loan amount from a direct lender will vary between state regulations and monthly take home income. The final loan amount is set at the discretion of the lender or shop owner.
- Some pawn brokers may roll over the loan similar to a direct lender, re-add the fees or new increased ones and set a new due date. There are brokers who will raise the cost of the loan to the resale value of the collateral. In other words, the price a broker would sell to a customer will be the new cost to the original owner.
- If a person does not pay the pawnbroker nor extends the loan, the broker will place the item for sale in the pawnshop. The price will repay the loan plus bring in revenue. When you don not repay the cash advance, the lender will sell the loan to a collections agent.
- Neither loan uses a credit check to establish the loan, but defaulting on a cash advance will hurt a person’s credit once it goes into collections.
Whether you use a pawnbroker or a direct lender for your short-term loan, the choice is ultimately up to each individual. Some people may not own anything with enough value to obtain the amount needed. Others may not want to risk items which hold personal value. If there are possibilities that the loan will not be affordable in 30 days, it is smart to hold off from placing precious items as collateral. A cash advance has even shorter term limits, but there is nothing held as collateral. When people choose not to repay these lenders, credit scores will be damaged by a collection agency reporting the debt in default.
Don’t rush into a decision. Look at whatever options you have available and make the choice based on protecting your finances in the long run. If you have to pay a little bit more now in order to save yourself later it may not be such a bad decision. Be careful when considering fast cash opportunities; be sure to look into all possible fees. Know your bottom line costs before taking out the loan. The last thing you want is to have your personal item on sale to the general public.
