How Do Pawn Shop Loans Work?

If you want to get a cash loan with a bad credit history, there really is no point applying to the bank. They will almost certainly not approve a loan, and you’ll likely be dealt with as less than “the ideal customer”. Yes, the very institution that has enjoyed your loyalty for so (read: taken your money for years) long will decline your application with minimal hesitation. Any adverse entries are recorded by credit bureaus for seven years will get your application denied. And after that seven years there’s no guarantee they will ever ignore that “little transgression”.

The good news is that pawn shops are willing to lend money to people with past credit problems without having to pass a credit check. Most other lenders perform a search, but not pawnbrokers. All that you require is an item of value and suitable identification. That is why the advance can be arranged, and so quickly. This is simply because you aren’t loaning money based on your ability to pay it back, the item you are leaving as collateral provides the guarantee to the pawn broker that they will get their money back. So you are able to walk out of the door with the cash in less in just a few minutes.

What is a Pawnbroker Loan?

A pawn shop loan is secured against an item of collateral, such as gold, silver, diamonds, even vehicles, and more. When you enter, you will be politely greeted and you can present your valuable item for an evaluation. It’s important to note that an evaluation is often the amount the business can sell the item for. But as they are a business, they will have to make money on selling the item, so expect to be offered less than what it can be resold for, should you choose to not claim your item at the end of the pawn loan term.

An internal expert will assess the value of the collateral and decide how much they are willing to lend you. You will usually be able to get at least 40% of the item’s value. In other words, if you bring in something worth $200, you can borrow $80. This is to ensure that there is enough equity for the lender to recover its money if you fail to repay the debt. Do not forget, that they need enough money to clear any interest that has accrued on the balance. This is a key consideration given the cost of borrowing.

What Happens if I Don’t Pay?

Securing the loan with collateral involves minimizing the risk faced by the lender. They are prepared to lend you money because they can easily recover their money. If you do not repay the balance on the due date, the item will be sold. However, unlike other pawn shops, Common Exchange makes every effort to reconnect you with your item; we will first call to speak with you about your situation first. If you need a short extension on the loan, we can work with you to make that happen.

Although you can take in just about any item with a high net worth, avoid pawning items with sentimental value.

Most of us have some old or damaged gold sitting in the bottom drawer that can be used to secure the advance. Attempt to determine how much each item is worth before you enter the doors of a pawn shop because they are in business to make profit.

What Identification Do I Require?

One of the problems faced by pawn shops is buying property that has been stolen, and that is why you will be asked to provide identification. Take along a copy of your passport or photo ID driving licence and proof of address, such as a utility bill. Photo ID allows a prospective lender to verify that you are not providing fake or stolen documentation. Make sure that your ID is recent, definitely no more than a year old.

How Do I Redeem My Collateral?

The agreed sum of money will be given to you in cash, and you are free to spend it in any way that you choose. The collateral will be stored away in a secure area, such as a safe. You will be handed a certificate of redemption so that you can redeem the item at a later date. If you do not settle the balance on the agreed terms, after repeated attempts to reach you, if you remain uncontactable, your item will be sold at the pawn shop. According to the National Pawnbrokers Association (NPA), 88% of all items are redeemed. Our average at Common Exchange is way higher than that.

Our advice to you if you aren’t able to pay at the end of the term: Do not bury your head in the sand if you cannot pay on the due date, particularly if you have used an item that has sentimental value. You may be able to repay the interest that has accrued and extend the agreement by an additional month. While this is not ideal, it does give you some time to raise all of the money you need to pay off the debt in full. Alternatively, if your collateral (item of value) is worth more than the loan and interest, you may be able to sell the item to your pawn broker, pay the loan, and recover the remaining cash.

At Common Exchange, our goal is to work with clients for solutions in their best interest. We are not out to keep your item, but rather to build a long-term relationship with you. Visit one of our 8 BC locations today, to see for yourself why we are different.

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