February 26, 2020 - Pawn Resources
You’re not alone. The average American household carries about $5,700 credit card debt per month, which includes households that have zero debt.
The average debt for households that carry debts is around $16,000. Being in debt is a situation most people avoid because of its consequences, and some opt for a paycheck advance.
This practice isn’t effective since there are a lot of other, better options out there when it comes to getting emergency money. Pawnshops get a bad reputation and often get lumped into the same category as auto title loan lenders. However, the truth is that pawnshops serve as a cheaper alternative than paycheck advance.
A lot of pawnshops allow their loan borrowers to buy back the item they gave as collateral within a month. Here are some reasons pawning your items is a better option:
Like pay advances, pawning your items don’t need you to have a good credit score. Most pawnshops only care about the value of the item to secure the loan. They need to see that you have a reliable source of income to ensure that you can buy back your item within the allotted time period.
The difference between a pay advance and pawning is that the former will destroy your credit if you can’t pay the money as agreed. At its worse, pawnshops will resell your item to regain their losses. Other than that, there are no other repercussions for not paying.
When your debt goes past the due, your account goes to the collections and can sue you. This forces you to collect the debt you own anyway. This results in negative credit marks that can remain on your credit report for more than seven years at the least.
When you get sued because of failure to pay the paycheck advance, it can cause your credit score to go down by up to 100 points. It’s hard to dispute this and win in court because you signed a contract that allows them to do this if you fail to pay. With this, it’s essential to have absolute certainty when you opt for paycheck advance instead of pawning.
When you opt for a paycheck advance, you get your loan based on how much your household earns per month. Some states even limit the amount of money you can borrow from lenders. Some of these can be as low as $300, which often won’t be enough to get you out of a pinch.
Pawnshops lend you money based on the value of the collateral item. Most shops give you anywhere between 25 to 60% of the item’s value. For example, if you have a necklace worth at least $1,000, you can get up to $600 loan out of it.
Some pawnshops can give even more value for your item. Others can allow you to pawn more than one item at the same time. This helps you get more money and pay off any pressing bills you need.
A lot of salary advance lenders got crippled because of the new regulations set by the Consumer Financial Protection Bureau (CFPB). These rules apply to a lot of other financial institutions, but pawn shops are one of the few exceptions. The reason behind it is that the agency believes that pawnshops offer a better option compared to a salary advance.
Pawnshops didn’t bring the debt problems that most paycheck advance companies bring. The rules set by the Bureau aimed to stop debt traps with high-interest rates.
Compared to pay advances, pawnshops offer lower loans.
Say for example you plan to pawn a Lenovo laptop. As soon as you pawn your laptop as collateral, the pawnshop offers you a loan. If you’re unable to pay back within a month, you can pay interest to get it back next month.
Paycheck advances often feature a two-week term that cost $10-$30 for every $100 you borrowed. That means that the average advance loan can have interest rates as high as 400% a year.
The reason people don’t spiral into bankruptcy because of pawning is due to the fact that you’re under no obligation to pay for the money you got from the pawnshop. When you can’t pay for a loan, the shop keeps the item you gave as collateral, and the transaction ends from there.
Salary advance loans often require you to give them access to your checking account. It causes damage to your personal finances. Most lenders can withdraw your money any time they want to, so if you already allocated money for another purpose, you might get into trouble.
When you go for pay advances, you need to submit documentation. The lenders need it to know if you can qualify for a loan and the maximum amount of loan you’ll have. You then write them a check for the amount of loan with additional fees.
The process can take a few days since they can either give you cash or a check depending on the amount you borrow. Pawning is faster because all you need to do is bring the item and tell them if you want to sell it outright or pawn it first. The pawnshop determines the value of the item and tells you how much they will loan it for.
As soon as you agree with their proposal, you can receive the cash you need within that day.
There are a lot of ways for you to get money when you’re in a pinch. There are salary advances and other types of loan companies that could trick you into entering a high-interest loan plan. If you want to have a safe, no-obligation way of getting money, pawning your items is the best way to go.
Looking to pawn an item? Are you in need of financial aid? If you need assistance, contact us today, and we’ll help.
David Stiebel is one of the cofounders of PawnGuru. David was educated at MIT, where he studied Math. He subsequently worked at Bain as a data scientist before starting PawnGuru in 2015. He started PawnGuru to build a better tool for pawn shops and consumers to connect.More Articles
January 15, 2019, 3:39 PM
Thanks for pointing out that getting a pawn loan means you’ll pay much less interest than if you get a paycheck advance. My husband and I need to find money somewhere for home repairs, and my husband was considering asking for an advance on his paycheck. I think I’ll show him this article and tell him we should consider getting a pawn loan instead.
September 27, 2019, 8:40 PM
I love how you mentioned that pawning doesn’t hurt your credit score. My brother has some issues with debt. I’ll make sure to pass this information along to him so he can look into going to a pawn shop.