Pawn shops are an excellent way to raise liquidity in the short term.

The speed at which the money can be obtained makes them an excellent source of finance for those who can’t spend a great deal of time filling up paper work, applying for a loan and waiting for it to get approved. While they are certainly a good choice for raising funds when necessary, there are a few things that must be taken into consideration before stepping into a pawn shop. Pawn shops in general have both advantages as well as disadvantages, i.e. both pros and cons.

Here are some of the main ones that are to be considered before making any decision regarding this:

Pros of Pawn Shops

1.) Instant Credit

The biggest advantage of pawn shops is that there is no need to wait for a very long time to get the funds raised. On the contrary, the money can be raised in a very short period of time which can be just a few minutes. All that is needed for this to happen is for one to pledge something of value and wait for the pawn shop to verify its value.

2.) Lack of Credit Checks

Most banks and other institutions require people to have a certain amount of credit to be in their name before a loan can be approved.

This is something that isn’t necessary when dealing with a pawn shops. They don’t require any background checks with regard to one’s current credit score, with very few exceptions.

3.) The Ability to Get Back one’s Possessions

The items that are pawned at a shop aren’t sold unless explicitly mentioned and agreed to at the beginning of the transaction. What happens instead is that the transaction merely implies the ‘pledging’ of one’s possession in return for a monetary consideration. In addition to this, there is also an agreement, written or otherwise, that the item that has been pledged would be sold after a certain number of days, should there be any delay in repaying the money that was given. For example, if one would sell silver to a pawn shop in Bay Ridge, Brooklyn, it wouldn’t be possible to get it back. But pawning it will, since one can always pay back the loan amount and get back the money.

4.) Interest Rates

In a lot of cases, the amount of interest that is required to be paid on returning the money is less than many banks and financial institutions. While this isn’t necessarily always the case, a lot of pawn shops do use this tactic as a means to attract customers.

5.) Choice of Items

Most pawn shops happen to be into purchasing anything that may be of value.

They aren’t very specific on what they take into consideration before handing out a loan. As long as the item has value, it gets accepted by the pawn shop.

Cons of Pawn Shops

1.) They Can Be Expensive

While pawn shops tend to be relatively affordable to a large extent, the truth is that many of them are expensive in terms of the interest rate or the loan amount.

2.) Lack of a Contract

To a large extent, there aren’t any specific contracts that have been signed by both parties when an item is pledged. This can prove to be quite dangerous, especially since there are instances when a pawn shop has simply changed the details of the agreement by raising the interest rate or reducing the repayment period.

3.) Liability after Resale of Pledged

Amount If in case one isn’t able to repay the money that was lent for the item that was pledged, the borrower always has the option to have the item sold. This is usually sufficient to have the debt amount settled. However, it is possible that if or when the sale of the item doesn’t yield enough money, the borrower can be made liable to cover the remaining loan amount along with the outstanding interest rate.

4.) The Loan Is Usually a Percentage ofthe Item’s Value

In a lot of instances, the loan is given out on only a percentage of what the actual value of the product is. This is because the pawn shops need to add up its own profit margin before selling it, should the borrower default on making a full repayment. What this means is that the borrower will only be getting a fraction of the item’s original value in most cases.

5.) Selling the Item to the Pawn Shop Usually Happens At a Much Lower Value

Anything that is sold to a pawn shop is usually done at a price that is far below the market price, even for second hand goods. This means that there is a net loss being incurred by doing so. For example, if one were to sell silver to a pawn shop in Bay Ridge Brooklyn, the return that could be expected would be much less than if the customer was a third party. In all, raising funds through a pawn shop can certainly be an excellent way to raise funds. This however, needs to be done after taking into careful consideration both the pros as well as the cons of doing business with a pawn shop. Understanding these facts and properly analyzing the choices can go a long way in ensuring that one takes the right decision about the matter.