Personal Loans VS Pawnshops: Listed here are The advantages and disadvantages Of utilizing Either Option

Having to borrow money to create payments is never ideal. However, because of the unique circumstances in Singapore, and most other countries in the world, so many people are finding themselves caught in a dire situation where they need urgent cash to carry on living life normally.

To get short-term income, people can consider options such as trying to get a personal loan from the bank in order to borrow from the pawnshop by pledging an item.

Both of those are legal options for you to borrow money from, and you should use them over illegal moneylenders, which are not only illegal but they are also prone to give you more problems compared to one you are attempting to resolve.

Advantages Of Using Personal Loans

Let's start with why many people prefer utilizing a personal loan.

No Requirement for Collateral

To get a loan from a pawnshop, you need to pledge an item. This item has to be of worth towards the pawnshop and really should ideally be considered a product which can retain its value well over time (e.g. gold, branded watches).

For unsecured loans, you don't have to pledge any items to the financial institution. Instead, banks will typically look at your monthly salary and lend you a multiple of the monthly income. You can apply for this with no collateral. When the bank approves your application, the borrowed funds will be disbursed.

Lower Interest Rates

Given that personal financing does not need you to pledge a product, you might naturally expect the eye rates to be higher as compared to the rates charged by pawn shops. Surprisingly, this is not true.

Personal loans such as the Standard Chartered CashOne Personal Loan charge a highly effective rate of interest from as low as 7.63% per year. In comparison, most pawnshops in Singapore charges you about 1.5% monthly for that borrowed sum, or about 18% per annum.

Advantages Of Borrowing From Pawnshops

In the digital banking age that people live in today, it's easy to dismiss pawnshops like a relic of history. However, should you prefer a quick loan, borrowing from a pawnshop is a practicable option that you ought to a minimum of consider.

Flexible Repayment Schedule

If you are unsure about how long you might need the borrowed money from, a pawn shop could be a more sensible choice. Traditionally, pawnshops do not give you a timeframe how long you can borrow, or how long you have to borrow.

For example, if you're borrowing $1,000 at 1.5% per month, you are able to decide to repay the borrowed money with interest ($1,015) later.

The pawn ticket that you will get will indicate just how long the pawnshop will hold onto your pledge items. Usually, it's about six months. Which means you will need to either renew your pawn ticket after six months by paying the eye to the pawnshop, in order to redeem the product by paying the full amount plus interest.

This gives you the flexibleness to determine how long you want to borrow the cash for.

Also, personal loans will need you to definitely make repayments for the duration of the borrowed funds. For pawnshops, you only need to make a bullet payment on the borrowed cash with interest when you want to redeem your item.

No Need For Credit History

When you take an unsecured loan, the financial institution will assess your creditworthiness by taking a look at your credit report and whether you've got a job. Based on these criteria, they will then choose how much they are prepared to lend you, if any.

For pawnshops, this isn't an issue. Pawnshops appraise the worth of the things that you're pledging, and then give you a loan with different number of the appraised worth of the things. Since the pawnshops earn money from the interest, there is little reason for them to appraise it at a lower value than what the things are in fact worth.

Of course, you can also choose to borrow a smaller amount than you are able to borrow in the pawnshop.

What Happens When You Default In your Payments?

In our opinion, the biggest advantage of using pawnshops is exactly what happens if you default in your payment.

For pawnshops, because you have already pledged your item to the pawnshop, the pawnshop is legally allowed to sell your items to recover the amount you owe them including interest. If they were to auction the product at a high price than you owe them, then they are obliged to come back you the excess money.

This is within contrast with defaulting on your unsecured loans, in which you be held liable for the repayments. You will get multiple letters of demand and may be also made bankrupt if you're not able to repay your individual loan.

Both personal loans and pawn shops are last resort options that you ought to only consider if you really need cash to tide you thru this difficult period. Still, it might help if you can to determine these differences and also to choose which option helps make the most sense for you if you need to borrow.