There is one more alternative to payday loans.
A similar and in the past very wide-spread option is pawn shops, or pawnbrokers. This is a service that allows getting cash fast in return for some valuable possession. It can be some piece of jewelry or any other thing. This service is somehow related to the idea of secured loans as in both cases some security is supposed to be pledged as collateral. Pawnbrokers, as well as payday lenders set pretty high rates for their services. They offer instant cash for those who appear in need of it and this definitely costs a lot.
- One of the drawbacks of the pawnbrokers is that a person risks losing his or her asset, provided that the repayment is not done in time. The terms of the agreement are so that many people consider this service last resort.
- Under the term of a pawn shop, or a pawnbroker, is understood the service that offers a person money in the form of immediate cash in return for some possession that a person should leave as security.
As it has already been mentioned, this is some sort of short-term immediate secured loan with the difference that a person leaves the object representing a security with a pawn broker. There is always interest charged and it is pretty high. Besides, brokers are in the possession of pledged property until the money is repaid in full. In case it is not, the latter have got a right to dispense with it according to their own will.
The most common things that are generally accepted as collaterals are:
- other valuable objects (such as instruments, electronic equipment and so on).
It is common for the brokers to undervalue the things brought to them and it is hard to get more than 50% of the asset’s real cost in the majority of cases. Pawnbrokers offer cash for longer periods of time than payday lenders but they are in the same league when it comes to the interest rate amounts.
The services of pawn shops are convenient but there are a lot of pros and cons to consider as well.
First and foremost, a person is obliged to offer some item of property as security and this is risky as in case of non-repayment it will be lost.
One of the great drawbacks of pawnbrokers is that all the objects taken as collateral are undervalued and the repayment amount can get even larger than the actual amount of a loan.
- On average, brokers offer 25%-50% of the item’s value, which is very little, indeed.
Besides, the charges are also very high, as it has already been mentioned. As opposed to regular secured loans, pawnbrokers tend to charge much even if there is collateral.
One of the disadvantages of such lending option is that in case of a loss of a pawnbroker’s receipt a person can have troubles getting the possession back even with the money for repayment.
Useful links: The National Pawnbrokers Association (NPA)