When you are strapped for cash and don't have time for all the paperwork that comes with a traditional personal loan from a bank, a pawn loan is a great option. Not only will you be able to get cash right away, but you will also have the opportunity to redeem your item when you repay the pawn loan. A pawn loan involves giving up temporary ownership of a valuable item in exchange for an agreed-upon cash amount. The cash amount will then be re-paid to the pawnshop over 30 days.
The loan amount granted is based on a percentage of the value of the item being pledged. The item is then held at the pawnshop until the loan is settled in full. On settlement, the owner takes back possession of the pawned item.
When you pawn an item as opposed to selling it to the pawnshop it is because you have every intention of coming back, paying off their loan, and claiming back your item. However, sometimes life gets in the way and you cannot afford to get your item back or simply forgot about it.
Let's explore the different scenarios that can happen:
Extending the loan If you don't have the finances to get your item back now, there is the option of extending the loan. This can be done by renewing the loan every 30 days to keep your account active. Obviously, this comes with a fee. In most cases, you will need to pay the accumulated interest.
If you keep renewing your loan, you will have to keep making payments after payment.
If you intend to come back for your item, it is for this reason that it is advisable to try to pay what you can towards the loan plus the accumulated interest to minimize the payments in the long run.
1. Late Payment
What happens if you are late with your payment for your pawn loan? If you pass the 30-day payback period, you simply hand over your item to the pawnshop. This means that the pawnshop will take your item from safekeeping and put it out on the shelves to be sold.
Although this might not affect your credit score, this will affect the relationship you have with the pawnshop. What this means is that the next time you're looking for a great deal or another pawn loan, you will more than likely be denied due to past failed payments.
2. Getting your item back after it was been relinquished
Is it at all possible to get your item back after it has been relinquished to the pawnshop? The only way would be to re-purchase it. The reality is that a pawnshop is a legitimate business with bills to pay of their own, so when a customer defaults on his/her commitment to re-pay the loan, it is only good business practice for the pawnshop owner to place the items on their shelves hoping that it will get sold soon so that the costs of the loan can be recouped. Despite what one may believe, pawnbrokers do not intentionally set to confiscate pawn items to put on their shelves to be sold. It is actually in their best interest to maintain great customer relationships so that customers are likely to return to pawn more items should they need cash again in the future.
Pawnshop owners know that if they sell an item that was pawned, they will only make their money back once, however, if the customer collects their item and come back to the pawnshop, that item could create repeat business for them in the future. There are many options available for re-paying your pawn loan. Being educated about what the options
are will create a more satisfying pawn experience for both you and the pawnbroker.
Although you now know what to expect if you ever default on your loan with the pawnshop, it is always better to discuss your financial position with the pawnshop owner and come to an agreement that suits both you and the pawnshop.