Pawnshops and Pawning

A lot of people can’t make ends meet, even basic needs. People have hard time

availing bank loans since they require many documents to be submitted. It takes long time also to get an approval. Most of government lenders offer loans to their members only. So what should a common borrower do? It is very hard to get apply and avail a

loan for them.  That is why pawnshops and pawning come into the scene. Due to the need of people to get a loan fast, less hassle and no requirements, pawnshops offer something different. Pawnshops offers loan by accepting items as pledge, no requirements to be submitted, no age limit, no financial statements and no waiting

for days. Fast approval in just minutes!

From the Latin word pignus, comes the word pawn, which means for pledge. Pledge

are items held as collaterals in exchange for the loan while pawnshop is a place

where these items are exchange for loan. Pawnbroker on the other hand is the

person that offers loan in exchange for the borrowers’ pledges.

So how does pawning works? First is someone brings in an item as pledge in exchange for a loan. Items that can be held as pledges include jewelry, appliances, electronics, musical instruments, tools, and even cellular phones. Jewelry is the most common pledge exchanged in pawnshops since they are lightweight, dense, comes in small packages, does not consume much space in their storage, highly and easily marketable, doesn’t weary easily, does not depreciate.

Next, the pawnbroker loans money to the borrower against the item brought as collateral. The amount of loan depends upon the market value or selling value of the collateral. The amount of loan that can be availed is computed as percentage of the collateral’s market value or even lower. The collateral’s market value depends on the appraisal of the pawnbroker with regards and comparison with same item in the market.

The borrower gets the item back once the loaned amount plus interest incurred has been paid. However the borrower has the option to deduct firsthand the interest from the actual cash he will get, or still include the interest on the payment of principal upon maturity. Sometimes the borrower has no option because it is already the pawnshop’s policy to deduct the interest of the loan from the loan amount.

If the loan was not paid on the time allotted, or on the maturity date stated on the pawn agreement, the pawnbroker keeps the collateral. The collateral then serves as payment for the loan. The pawnbroker usually sells the item at lesser price so as to make it cash and be used back in the business. The time allotted to pay for the loan and avoid the forfeiture of item is usually 30 days from the loan date plus grace period.