Income shortages can happen at any time for a number of reasons. Whether you face an unexpected medical bill or a sudden job loss, you need to make ends meet to take care of yourself and your family.
If you have experienced an income shortage, you’ve probably considered pawning an item. You may also know a little about collateral loans. What you may not know is how these two concepts work together.
In this blog, we answer some of the most common questions about collateral loans issued through pawn shops.
What’s the Difference Between Obtaining a Collateral Loan and Pawning?
Essentially, any loan where you receive money based on the value of a specific piece of property qualifies as a collateral loan. Collateral loans come in all shapes and sizes. Many loans you may already have fall under the “collateral” category. You can obtain a variety of collateral loans in financial institutions, like banks and reputable pawn shops.
Pawning represents a specific type of collateral loan. To pawn an item, you bring it into a shop. The owner or resident appraiser offers you a loan amount based on the item’s value.
How Does the Collateral Loan Process Work?
Once you come to an agreement about the dollar amount, you leave your chosen item at the pawn shop. The owner issues you a pawn ticket or receipt, which you’ll bring with you when you collect the item.
While the item stays in the shop, the loan accrues interest at a set rate. When your loan comes due, you come back to the shop with your pawn ticket. At this time, you pay back the loan amount, any interest, and any additional fees. The shop then returns your item.
If you cannot make the payment before the due date, you may ask for an extension or loan renewal.
During the loan period, typically one to four months, the pawn shop simply stores your item. If you do not return to the claim the item, the shop takes possession of your belonging and puts it up for sale. However, studies show that 80% of individuals claim their items within the terms of their loans.
What Do You Need to Bring With You When Seeking a Collateral Loan?
When you come to a pawn shop, you will not need to provide proof of income, a credit score, and the personal information required for loan issuance. However, you will need to bring a valid form of identification with you. You will need ID even if you’ve worked with this pawn shop before.
In most pawn shops, you can provide any of the following types of identification:
- Driver’s license
- Passport, either US or international
- State-issued photo ID
Additionally, you must bring the item you intend to pawn. Pawn brokers cannot appraise items over the phone since the item’s condition factors heavily into its value.
What Type of Collateral Can You Use?
Collateral restrictions vary from shop to shop. However, most pawn shops accept items in the following categories:
- Jewelry and coins
- Musical instruments
If you want to pawn an item outside of these common categories, call your local pawn shop before you bring the item in. If the shop cannot accept your item, the staff may be able to help you find a shop that will. You can even pawn the same item more than once, as long as you continue to adhere to the terms of each new loan.
Seeking a collateral loan for the first time can seem intimidating, but the process is straightforward. If you feel unsure or have more specific questions about collateral items, value appraisal, or loan terms, bring them up with pawn shop staff. These experts handle many collateral loans every day and can guide you through the process.