A Comparison Of Pawn Shop Terms To Traditional Loan Terms

When you are faced with a financial emergency and need extra cash, a variety of loans are available for you to choose from. Two particular choices of loans that people can acquire are pawn shop loans that loan you money based solely on collateral and conventional, or traditional, loans that are acquired through a bank or other financial institution. In this article, we will compare these two types of loans and their terms, as well as some pros and cons involved with both categories of loans.

Pawn Shop Loans

Pawn shops loan money to people with a fixed-term loan based on collateral. The collateral can be computers, jewelry, musical instruments, and other items that are worth value to the customer and the pawn shop. The amount of the loan that you will receive based on your collateral will about 25% to 30% of the suggested retail price or actual worth of the item in order to ensure the pawn shop their money that they advanced to the customer in case the loan is defaulted. Because pawn shop prices are relatively lower than resale value, they cannot loan the full amount of retail value.

Because the pawn shops accept collateral to cover the amount of the loan, there is no need for a credit check when applying for a pawn shop loan. Simply walk into the pawn shop with your item or items that you want to use for collateral and present them to the pawn shop employee. They will make you an offer and provide you with the terms of the loan, and you can make your decision of whether you want to acquire the loan or not based on their offer.

The loan appreciates quickly, usually within 30 days, and can be renewed but is quite often lent at an APR of 120% to 200%, the price you pay for the quick, no credit check, and no hassle loan. Once the loan and the interest are paid off, the borrower can reclaim the property that was used as collateral. Adversely, if the borrower defaults on the loan, the pawn shop reserves the right to resell the collateral in order to recover for the loan.

Traditional Personal Loans

Traditional, or conventional, loans are based on individual credit ratings and are more difficult to obtain than that of a pawn shop loan. Usually acquired through a bank or other financial institution, traditional loans can be a hassle to get your hands on. If you have good credit scores, a stable job, and good debt to income ratio, a traditional loan can offer you more money than a pawn shop loan, in amounts up into the thousands.

As opposed to the pawn shop loan that can be obtained on the spot, traditional loans can take time for the application and approval process, so the borrower must not be under major time constraints. Each banking and financial institution has their own application process as well as loan turnover time, so inquiring how long the whole loan procedure will take is an important factor in the decision of where to borrow the money from.

Because the traditional loan is obtained without collateral, if the borrower defaults, credit ratings will be affected, as opposed to the pawn shop that will simply sell your collateral to recover the debt. At about 9% APR, these loans are a better financial choice by far than the pawn shop’s phenomenal APR rate, if you possess the necessary requirements to acquire one.

In conclusion, both types of loans can be appropriate solutions for financing, but the borrower’s current financial situation is a deciding factor in which loan to choose. If you only need a small amount of money and your credit rating is not top-notch, then the pawn shop is a great solution. If a larger amount of money is needed and good credit is on your side, then a traditional loan will offer the best APR over a more extended period of time.