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Borrowing from a pawnshop. What you need to know.





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Strapped for cash? Most people would shy away from borrowing from a pawnshop. Yet getting a loan from one may not be as bad as you think.

This is how pawnshop loans work: Let’s say you have a necklace worth $10,000. You bring it to a pawnshop. They may value it at $5,000 and provide you with a loan for that amount. Usually, you can expect to receive 60-80% of the fall value of the pledge (your necklace) from a pawnshop.

You will usually be given six months to repay the loan. When you don’t pay your loan after six months, your collateral will be auctioned off by the pawnshop to recover the loan.

With the mushrooming of pawnshops all over the island, interest rates have become fairly competitive. To draw more customers, the shops have been lowering interest rates and pegging a higher value to customers’ possessions. Interest rates are between 1-1.5%, which is lower than the 2% charged monthly by credit cards. The biggest players in Singapore are Maxi Cash, Value Max, Cash mart and Money Max.

Why You Should Consider a Pawnshop Loan

Unlike a bank, you don’t need proof of identity or income to secure a loan from a pawnbroker. You only need a valuable item as collateral for the pawnbroker. Additionally, unlike banks which will need time to approve your loan, pawnbrokers can lend you the money immediately as they can always sell your possession to recover the loan should you default on your payment. They are also a better option than licensed moneylenders who tend to charge a higher interest rate, some as much as 4%.

pawnshop loan

Why You Shouldn’t

The downside to borrowing from a pawnshop is that pawnbrokers charge a higher interest compared to banks -- 1.5% compared to about 1% per month of effective interest on your personal loan (this is the true cost of your loan). Also as banks are unsecured loans, there’s no need to put up collateral and you don’t have to worry about losing your valuables.

If are in a financial crunch, but don’t have the credit rating to borrow from a bank – and you have a valuable possession on hand – a trip to the pawnbroker could help you tide over your difficulty. Hopefully, you’ll also be able to pay off the loan in time and recover your belonging.

On a final note, make sure the pawnbroker is on the government registry of listed and licensed pawnbrokers. Go to the Ministry of Law Singapore website for more details.

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