Collateral Loan Vs. Signature Loan: 6 Tips for Pawn Shop Loans in NY
It’s Friday afternoon, and your paycheck isn’t ready. Frustrating, but ok – except now you’re scrambling for a quick loan to pay the plumber. Cold showers all weekend won’t be fun.
Where do you turn when you need cash for an emergency? For nearly 40 million Americans with limited or no banking options, the answer is to go to a pawn shop to take out a collateral loan.
Let’s look at six reasons why collateral loans are still in demand today.
1. What’s a Collateral Loan?
A pawn loan is as straightforward as a loan can be. The customer pledges a piece of their personal property – let’s say a watch – and in return, the pawnbroker makes a short-term loan for the item’s value.
Once the customer pays back the loan, the pawnbroker returns the collateral – their watch – to them. Offering collateral for a secured cash loan for emergency funds dates back to ancient China, Greece, and Rome.
The beauty of collateral loans is that people often need relatively small loans – emergency funds – that most financial institutions won’t provide. Banks aren’t interested in making a $250 emergency cash loan for a month or so. Just processing all of the paperwork involved would cost more than the loan was worth.
What happens if the customer decides not to repay the loan – not to redeem the watch? In that case, the pawnbroker owns the watch and will sell it at a very attractive price to a retail customer. However, industry statistics show that 85% of customers redeem their items.
2. How You Qualify
Unlike traditional loans from banks or credit unions, there isn’t a lengthy process to get emergency cash through a collateral loan. You won’t have to fill out reams of paperwork, provide income verification, or undergo a credit check.
The process is fast and painless. Take whatever personal property you want to use as collateral against the loan to the pawnshop, bring your government ID, fill out a simple loan ticket, and go on your way.
And back to the credit issue, if you choose not to repay your loan, the pawnshop doesn’t report you to the credit bureaus – there’s no negative effect at all.
3. What Kinds of Collateral Can You Use?
Collateral for a no-credit loan from a pawn shop can be almost anything in broad terms. Bear in mind that if you choose not to redeem your pledged item, the pawnbroker needs to be able to sell it to recover the cost of the loan. That means certain items are far more common as collateral, including:
- Jewelry and watches
- Electronics and smartphones
- Precious metals
- Musical instruments
- Antiques
- Collectibles
- High-End Sporting Goods
Here’s a little more detail on specific categories of collateral.
Jewelry and Watches
Estate and pre-owned jewelry – especially items with gold, platinum, or diamonds – are good as collateral. Pawnbrokers are very familiar with precious stones, metals, and jewelry. They have the expertise to evaluate cut, carat weight, and value. High-end and collectible watches are also common.
Precious Metals
Since precious metals appreciate over time – and because many pawnshops actively buy and sell gold and silver – they make good collateral. As a result, pawnbrokers make it their business to know the value of precious metals on a day-to-day basis.
Collectibles and Vintage Technology
As a general rule, collectibles are always worth far more to the collector than to a pawnshop. That said, individual items can be great collateral. Vintage technology – let’s say a 128K Macintosh computer – is always worth pawning.
The bottom line is that collateral that the pawnshop will be selling quickly if the loan goes unpaid is always better than something that will take a long time to sell.
4. How Fast Can You Get a Loan?
The short answer? Fifteen minutes. That’s right. That’s how long it takes for most borrowers to bring in their collateral, have the licensed pawnbroker evaluate it, and approve the loan. Then, fill out and sign the very simple ticket, get your cash, and you’re finished.
5. Who Regulates a Pawn Loan?
Collateral loans from pawn shops are highly regulated. Regulating pawnshop loans began before other forms of consumer credit were regulated. In addition to registration, licensing, and regulation at the city and state levels, collateralized loans are governed by no less than 15 federal laws.
In addition to complying with all of the other federal rules governing financial institutions, regulating a pawn loan falls under these federal statutes:
- USA Patriot Act
- Truth-in-Lending Act
- Bank Secrecy Act and IRS regulations requiring reporting of certain cash transactions
- Trading with the Enemy Act and related Executive Orders and regulations
- Privacy provisions of the Gramm-Leach-Bliley Financial Services Modernization Act
6. Interest Rates and Loan Terms
Borrowers taking out collateral loans can opt for loan periods ranging from 30 days to 120 days. If the borrower keeps the loan open for 120 days – and if the loan repayment period is four months – zero interest is charged on the first 30 days. After that, the loan is charged at a rate of four percent per month.
The pawnshop will charge a fee of no greater than one percent of the loan’s value to cover storing items in the pawn shop’s secured vault. The Borrowers’ can pay off collateral loans during the agreed-upon loan period at no additional charge. The pawnbroker only charges for the time in which there’s an outstanding balance on loan.
Once the borrower pays off the loan in full, the collateral items are returned in the same condition as received. The pawnshop, of course, retains the right to sell the collateral if the loan isn’t repaid per the terms.
Do You Need a No Credit Loan?
Getting a collateral loan for emergency cash is as easy today as it’s been for thousands of years. There’s no credit check or income verification involved; there’s no time-consuming application process. And collateral loans don’t affect your credit.
The process is simple: take your collateral item to your pawnshop, have it evaluated, and sign the simple pawn note. Then, moments later, you’ll be walking out the door with your cash! Contact us today!
