Are you in a tight spot with money? Do you need a loan today? We’ll break down the 3 main types of loans so you can decide which one is best for you.
An installment loan is a type of loan where you get all the money up front and pay it back in installments, usually every month. Student loans, mortgages, and auto loans are all technically forms of installment loans. These loans either have a fixed or adjustable interest rate and are paid every installment until complete. However, when most people talk about “installment loans”, what they mean are not those. They’re thinking of uncollateralized, relatively high interest personal loans. These have recently proliferated over the internet.
A payday loan is a type of installment loan. When you’re talking about installment loans in the colloquial sense, you are basically talking about payday loans. What I mean is, they’re not very different, if at all. It works like this: you get a loan all up front and then pay it back in installments, usually every month. The only conceptual difference between payday loans and installment personal loans is that payday loans might have shorter terms or higher interest rates than other personal installment loans. In other cases, the difference is more about loans size. Usually the things people call installment loans are for amounts larger than $3000 because the background check and loan application has a significant amount of overhead cost. Payday loans are usually for under $3000.
A pawn loan is similar to an installment loan, but it is predicated on collateral instead of your credit rating. Pawn loans are also called collateralized loans. With pawn loans, you bring a valuable item to the pawn shop and hand it to them for a loan. The loan is up front and you pay it off with interest every month until it’s complete. The main differences are that pawn shops don’t care about your credit history, and what happens if you don’t pay it off. With personal loans, installment loans, and payday loans, if you do not pay off the loan you go to debt collection and get hounded until you pay back the loan. Whereas with pawn or collateralized loans, if you do not pay back the loan, you lose your item. Losing your item sucks but is widely considered better than being trapped in an escalating series of fees and interest forever.
When you get a mortgage, you place your house up as collateral for the loan.
When you get an auto loan, you place your car up as collateral for the loan.
When you get a pawn loan, you can put up any valuable item as collateral for the loan.
But when you get a payday loan, you don’t put up any collateral, which makes the terms much more difficult for consumers to manage. As a result, fees are higher, interest rates are often higher, and the lender can pursue you for many times what the original loan was worth.
Payday lenders and pawn shops both give out small personal installment loans, but pawn shops tend to have lower interest rates, do not affect your credit score, and do not ensnare you in a permanent debt cycle. The worst that can happen with a pawn loan is that you lose your item, which while bad, is not as bad as being sent to debt collection.
For peer-to-peer installment lenders, you apply in a slightly different way. You give the peer-to-peer lending organization your current income, social security number, credit score, current job, and reason for application. Then the organization does a background check on you and put your application on the market. Different lenders bid on your loan application and you get to choose which loan to accept. It tends to move a little quicker than a bank.
You can get an online payday loan, alternatively called an installment or personal loan, by filling out an application from a payday lender. You have to put down your standard personal information, your social security number, your loan amount, and your job and income. You can usually get the loan same day.
While you cannot pawn an item online, you can get a pawn shop to give you an offer on your item online. You can only pawn an item in person because the pawn shop needs to have your physical item in their possession to give you a loan. The best place to get an offer from a pawn shop is PawnGuru.
PawnGuru is a website service that connects people who want to pawn or sell their item to local pawn shops.
If you want to pawn or sell an item you own, simply submit your item to the platform. Shops in your area will be notified and will make offers for your item. You usually get an offer within the first 24 hours. If you accept a bid on your item, simply drive over to the pawn shop with your item and pawn or sell it.
Here is where we get into the inner workings of PawnGuru.
In 2014, our CEO Jonathan visited eight Detroit pawn shops with a violin, an iPad, a gold ring, and a diamond ring. He wanted to answer the question of whether pawn shops offered the same prices for the same items or different ones. He found a huge spread from the different pawn shops. Some pawn shops offered hundreds of dollars for items that some pawn shops only offered pennies.
For the iPad, one shop offered $50 for a pawn loan, and the other 6 shops offered over $100.
For the diamond ring, one shop offered $65 for a pawn loan and another offered $1060.
All 8 of the shops they visited were located within 15 minutes of each other in the Detroit area. These price differences are common for the pawn industry.
In fact, we did an analysis over an entire year, and found the time of year greatly increases variance too. In May, the average difference between the highest and lowest bid was 405%, and in December it was 184%. People tend to pawn the most during the summer months and pawn shops want to sell the most during the fall and early winter.
The gist of this experiment is that not all pawn shops specialize in the same materials. I spoke to a wide variety of pawn shops at our latest Pawn Innovators Conference. Some pawn shops only dealt jewelry, and some didn’t even have jewelry! You don’t want to take your diamond ring to a shop that only deals electronics.
It’s all about supply and demand. The pawn shops need to move their items faster, and if they’re known in the community to be the best place to buy a TV, they would love to take your high quality TV. If you try to give them a diamond ring, they won’t be able to sell it as fast, so they won’t be able to give you the best possible deal for it.
The average spread for pawn shops in 2015 was 258%. Jewelry has the largest offer difference, and video game consoles have the smallest offer difference. Each ring and necklace is unique, whereas each console is a factory replica. If your video game console is in good working condition, then it should be worth about as much as the other identical video game consoles around. Still though, the offer difference between the highest and lowest offer for a video game console was 50% in 2015.
So which store is the best store to pitch your item to? The specialized stores give the highest offers. The store that only buys/loans/sells jewelry wants your jewelry the most. The store that mostly buys electronics wants your TV the most. Furthermore, the specialized shops have specialized knowledge. The TV store knows what a quality TV is. The jewelry store knows how to tell genuine diamonds. The handbag store knows how to tell fakes. The shops who know your item’s quality are likeliest pay for it.
If you get what seems like a low offer from a pawn shop– remember, it isn’t about you. Your item might not be right for that shop, and that’s okay. There are plenty more who can and will express interest.
Finally, the difference in pawn shop offers has to deal with their cash on hand. They will pay you immediate cash for your item. The more cash on hand the shop has, the better or larger the offer they’ll be able to make. Cash on hand varies with the time of the month and their inventory.
Pawn shops value firearms, jewelry, luxury watches, and designer handbags the highest. These items last the longest, have the least decline in value, and are in high demand in the marketplace. Pawn shops actually value firearms the most.
If you have another item that has high value, low depreciation, and have a high market value, pawn shops will give you lots of cash for it.
After firearms, jewelry, luxury watches, and designer handbags, pawn shops like
First, clean it thoroughly. Pawn shops want to know that they can resell your item if they need to. They can’t resell a dirty item. Obviously don’t put your laptop in dishwasher or tarnish your silver, but take reasonable measures to make your item presentable without damaging it.
Second, make sure that it works. Pawn shops do not want your broken lawnmower or PlayStation. However, for jewelry, if you have half of a necklace or a ring that is missing a few pieces, you item is worth at least the materials it is made out of. A gold ring is still worth the value of the gold it is made from.
Third, make sure you have all the component pieces. If you are bringing in an iPhone, make sure you have the iPhone charger. If you are bringing in a TV, bring in the TV remote and stand.
Submit your item to PawnGuru today! We’ll match you to local shops. The shops will help you pawn or sell your valuables for money today.