Ever seen a shop or a business marked as a pawn shop across the street? Has it ever left you wondering what exactly is meant with being a pawn shop? This article helps you under what a pawn shop is, how it operates, and the advantages of a pawn shop.
What is Pawnshop?
A pawn shop is a form of a shop/ business whose transactions are done on a collateral basis. A pawn loan money to people who in turn leave their valuable pieces with the pawnbroker which they hold onto until the individual repays back the loan. A pawnbroker is a person running the pawnshop Valuepawn and jewels.
Items accepted in a pawn shop as collateral
- Music instruments
Collateral simply means serving as security. So the items serve as security for the loan.
How a pawn shop operates
An individual approaches the pawnbroker with a valuable item and they agree on how loan they can receive using their item as collateral. The agreement also comes along with the repayment period and the interest to be paid back together with the loan.
The person who has borrowed money is required to pay back the principal amount and the interest accrued after a specified time failure to which, the pawnbroker is allowed to sell off the item/ items used as collateral in order to recover their money.
Requirements to access a loan from the pawnshop
- Your item must be valuable enough to be able to outmatch the value of the loan given.
- Identification documents or some form ownership deed in order to prove the item you are pawning really belong to you. This is important in order to ensure the pawnshop shields itself from handling stolen goods.
Why pawnshop loans are better than the traditional banks
- In case of an unprecedented event where you are unable to pay your loan as agreed, they do not report you to credit bureaus and hence you get to keep your creditworthiness in the mainstream credit facilities such as banks and Sacco.
- You get an opportunity to discuss and agree on your terms unlike the mainstream facilities where most of the terms such as interests
- You get to cash in some of your old valuable items that are lying in your house without much use. Such items as an old gold ring that you are not using and an old valuable watch.
- They give you access to quick small amounts of money that would have been hectic to request for processing for the banks.
The main disadvantage of using Pawn shops as your credit facility
As good as they sound to be especially because they give you quick access to credit, pawn shops can be disadvantageous and when using them you will require great caution. You stand to lose your valuable possession when you fail to honor your debt and on the other hand, their loan interest can slightly higher than the regular credit facilities.