This article gets to highlight the cons of pawnshops in relation to other money lending institutions and retail outlets.
Topic: Distinctive Drawbacks of Pawnshops/ Pawnbrokers
Despite the fact that pawnshops have numerous advantages it falls short in some instances. Many people who are unable to get loans from financial institutions like banks opt for pawnshops yet not many of them are able to repay the loan pawned. This is just one of the snag issues affecting pawn industry. Pawnshops are one such business models you need to think twice before you venture into. Bear in mind the old saying that goes, when the deal is too good, think twice.
Below are various drawbacks of pawning:
- Very High Interest Rates
The decision to get a loan with collateral is that it makes lending that money less risky on lenders part. If the borrower doesn’t pay back, the collateral ensures it won’t be a total loss and less risk for the lender. This means lower rates for the borrower. This is in a normal scenario but with pawning this isn’t true. Despite pawnshops risking very little time in issuing loans, many of them are charging high APR rates exceeding 25%.
- What You Borrow Depends on Item You Pawn
In other words you cannot borrow that much. The amount you will be able to borrow with a pawnbroker will depend on the value of the property that you are pawning. You will only get a small percentage of what that items really worth.
- Probability of Losing Your Property
If you default in paying your loan back, the pawnbroker has the right of the item you left at the shop to own it. In other words it becomes property of the pawnbroker. You are usually given sometime to pay your debts, about a month or so. If you don’t, the pawnbroker is at a position to sell it.
- Acceleration of Debt Cycle
This is a result of the short term loans offered by pawnshops. This means a chance of not paying back on time is high and as a result, they will give you an extended date. This additional date means additional interests or charges. This can be tragic as the vicious cycle of debt can be created. You find yourself constantly throwing more money at your cash advance loan but not able to pay off the loan.
- You can always get cheaper interest rates elsewhere. For instance, with a homeowner loan.
There are other disadvantages but these are just the basic things that you need to know about getting a loan from a pawn broker.
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