With economies becoming more digital, most aspects of financial transactions have followed suit. For quick cash for short term financing, online pawnshops may be your answer. It is, therefore, important to understand the benefits and disadvantages of this type of cash advances. Although it may be a safe bet, there is still a lot at risk.
What is Pawning?
Pawning refers to directly exchanging valuable personal items for a cash loan. This is for a contractual period with a pawnbroker, who holds the item until the loan, plus agreed interest, is repaid. The item is then returned to the original owner. If that is not possible, the pawnbroker can rightfully sell the item to another buyer coming to their shop, at whatever price they agree on.
Pawnbroking has been going on for centuries, initially between individuals, but in time, shops for this business category were opened in many countries. Pawnshops hold many types of items that include clothes, electronics, tools, artefacts, and jewellery, among others.
With the growth of the internet and digitization, the local pawnshops have embraced e-commerce by taking their businesses online.
Pros of Using Online Pawnshops
Online pawnshops seek to change the image of local pawnbrokers that are perceived to exploit poorer people who have hit hard times, by not giving them value for their valuables. They do this by attracting a middle–class clientele that is hard hit economically and needs larger loans to meet their financial obligations. This clientele will usually have better ability to repay their loans. Their pawned items will also fetch higher profits in case they default with payment.
With online pawnshops, there is discretion as the transactions are electronic. You will get the required loans without your business being out there in the public, risking your reputation.
Short term financing through on-line pawnshops is also beneficial as credit bureaus do not regulate pawnbrokers. As a borrower, you protect your credit ratings. You can achieve your objectives without digging yourself deeper into financial ruin.
The interest rates are relatively lower than if you were to take a loan from a formal institution such as a bank.
You can get cash as soon as you deliver the item to the broker. No waiting, no delays.
They offer bargains at affordable prices.
Cons of Using Online Pawnshops
Although the interest rates are relatively low, they are still quite high. If you do not repay the loan in time, any extended time is also charged additional fees or interest. This cycle of debt can become predatory, leaving you worse off than before, and unable to repay the loan itself.
No collateral except for the item you consider valuable is left with the broker. If you do not repay the loan in the agreed time, you lose the item. This increases your risk as it is not a win-win situation, with the high–interest rates. The pawnbroker always wins if the debt is unpaid, or is paid over a longer period than that which was initially agreed upon.
You can only borrow so much from the pawnshops as they will usually give cash that is less the value of your item. Do not risk your most valuable possessions by pawning them.
Online pawnshops are part of the new e-commerce industry. They target a more middle–class clientele who can get bigger loans and is better able to repay their debt. Even though, they also charge fees and extra interest when the loan is not repaid on time, and you can lose personal valuable items. The risk on you as the borrower is quite high, despite your credit score not being affected. If you need a loan from an online pawnshop, consider the reasons for that, and if there are other less-riskier alternatives.