Pawning goods is often seen as a last resort for the cash-strapped to get funds in a pinch. But now there is a new trend emerging when it comes to pawning: The wealthy are using their high-priced possessions as collateral for quick cash, or a payday/personal loan, to fund business ventures.
There are a handful of lending companies tapping into this trend, providing big loans to clients using their high-priced collectibles as collateral.
Jordan Tabach-Bank of The Beverly Loan Company told CNBC that pawning growth is “certainly geared more towards opportunity loans than anything else.”
The trend of the wealthy pawning high-end goods is in part a reflection of the state of the economy. With the economy on solid footing, business owners are looking for ways to capitalize, either through expanding current operations or pursuing new opportunities.
Sometimes, they need to move quickly and by pawning goods they can get fast access to cash rather than waiting for a bank approval on a loan.
It’s an Option, But is It a Good One?
A pawn shop loan can offer quick cash without a credit check – but there are drawbacks. Pawn shop loans come with high interest rates that can vary from 12 percent to 240 percent or more, depending on whether a state has laws restricting rates, according to Nolo. Also, pawned goods may also be subject to storage costs and insurance fees.
In the worst-case scenario, if a customer offers their prized possessions for collateral and does not pay off their loan in time, then they could lose the item after borrowing money that is a fraction of the item’s value. According to Nolo, pawn loans typically run about 25 percent to 60 percent of an item’s resale value.
The terms and conditions of a pawn shop loan differ between different companies and clients. At the end of a repayment term, they will mail a notice to a client. That notice informs he or she of the date by which the client must either pay off their pawn loan, redeeming their collateral or pay the interest and costs owed, renewing the pawn loan for another four months. If the client does not respond by the stated date, the shop may foreclose on the pawned collateral which means they take possession of the loan.
Quick cash for a business might be handy in a pinch, but in reality, it isn’t the standard practice for a reason. As mentioned earlier, relying on a pawn loan could cost a business owner quite a bit, or it could leave he or she out of collateral which in this case is a “high-value” item.
Is There a Better Option?
Alternatively, it might be more realistic to rely on other funding sources. Since pawning items is usually conducted on a personal basis, taking out a personal loan could be a reasonable alternative.
An unsecured personal loan does not require collateral, and if you have an established income and decent credit score, then you have a decent chance at beating 240% APR on a pawn loan. Furthermore, many online lenders tout the approval to funding speed, which could potentially match a pawn loan procedure.
Author: Mike Brown
Join the LendEDU Newsletter
News, insights, & tips once a weekThanks for submittingPlease Enter a valid email
Personal Loans Information
Personal Loan Reviews