What Is The Definition of Pawning?

February 21, 2012 by  Filed under: Credit 

To pawn an item means to deposit personal items of value as security for a (usually short term) monetary loan. In this loan we examine the workings of a pawn shop and those who might want to use one.

Pawnbroking is one of the oldest trades in the world. It gives customers the opportunity to access money when they need it without having to sell their treasured items. The customer still owns the pawned item, which is held by the pawnbroker until the money and interest is paid. At this point the item is returned and the contract ends. If the customer were to default on the loan or not return, the item becomes the property of the pawnbroker who will most likely sell it for profit in their shop.

Pawnbroker loans are sometimes considered an expensive way to borrow money, but there are many more expensive ways to get cash fast. A pawnbroker will not be able to lend you 100% of the perceived value of the item, and will charge you interest, this is how they make their money. For example, if you have an item that you value at £100 the pawnbroker may offer you £50-£75, and will calculate the interest on that loan. Should you not return or default on the payment the pawnbroker will seek to recoup their money by selling your item in store.

These days there are many companies offering instant online loans and pay-day loans at exceptionally high rates of interest. By comparison if you own an item of relative value pawning it may be considerably cheaper that borrowing from one of these companies. When calculating repayments and affordability it is often the interest rate, not the actual loan amount, that trips people up and leaves them unable to pay. This of course can had a negative impact on your credit rating and have other financial implications.

Pawning has another major benefit over alternative ways of getting hold of cash; you still own the item. If you were to raise capital by selling your valuables, it is likely that you will be selling jewellery or other items which may hold significant sentimental value, or those which you strove to pay for and are not keen to sell. By pawning the only way you will lose ownership of your goods is by defaulting on your loan. If you hold up your side of the deal your item will always belong to you and you can reclaim it when you pay the money back. If you decide to sell your item there is the possibility that you will regret it at a later date, and of course will be unable to reclaim the item.

If you decide to pawn your items make sure you use a reputable pawn shop. As in all trades you should shop around before making your final decision. Check reviews, whether you are looking at an online pawnbroker or a shop based pawn broker. Some will offer you a higher loan against your item or a lower interest rate than others, and it is always best to check all options before making your final decision.

Philip Loughran writes on a number of subjects from travel to law, automotive to education. For pawnbrokers and pawn shops he recommends Pawnbroker.

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