If you're looking for ways of raising cash quickly, and you can't obtain loans or credit easily, you might want to consider pawning some of your valuables. But how does pawnbroking work? What are the advantages and disadvantages of pawning, and will this option work for you?
What are pawnbrokers?
In a nutshell, pawnbrokers lend money secured against an item of value that they can sell if the borrower fails to pay back the loan.
The borrower signs a contract containing details of the credit agreement taken up with the pawnbroker. The pawnbroker will give a term for the loan at the end of which the loan must be repaid in full before the borrower can claim back the valuables. The term period can vary from one month to seven months, and can usually be extended as long as any accumulated interest has been paid. There is a 14-day period during which a borrower can cancel the agreement.
You can pawn pretty much anything you own as long as it has a resale value. The favourite item for pawning is jewellery but there are specialist pawnbrokers who deal with luxury items like sports cars, yachts and works of art.
Advantages of using a pawnbroker
One advantage pawnbrokers have over payday lenders is that they charge much less interest on the money they lend. However, rates do vary depending on the pawnbroker or item in question, so it's important to shop around. Unlike many lenders, pawnbrokers will allow borrowers to repay the loan early if they want to in order to avoid penalty.
Also, if you have a poor credit history, you can still borrow money from a pawnbroker. No credit checks carried out that could adversely affect your credit rating. It's usually possible to get cash for your goods on the day you sign the agreement. Your goods can be reclaimed without penalty at any time during the term of the agreement.
Disadvantages of using a pawnbroker
Pawning your valuables can be expensive as interest rates are higher than you'd pay on bank loans and most credit cards. You're only able to borrow a percentage of what your items are worth. If you fail to repay the loan in full, you'll lose your goods. You could still be liable for the balance of the money you borrowed if the pawnbroker is unable to raise the full amount from the sale. It's important to consult pawnbrokers like Mobile Money Australia to fully understand the good and bad consequences of your transaction before deciding this is what you should do.
Pawning your valuables to raise cash urgently is a useful solution if you can pay the loan back in full and on time. Always seek advice from a debt counsellor if you are in financial difficulties before resorting to pawning your possessions or taking on more debt.Share
14 April 2015
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