During the Covid-19 crises, millions of people around the world lost their jobs, and they are in need of money to make ends meet. Throughout this pandemic, a lot of businesses had to close their shops and let go of their employees. It is said that the world’s economy is on the verge of a breakdown and everyone is hoping that this difficult period will soon come to an end. To make ends meet, many of us are looking for salvation through loans and pawn shops, but the interest rates seem to go up and many don’t know if they are going to be able to pay the money back.
In this article, we are going to talk about the way pawn shops work, the common interest rates, and how the virus and the pandemic affected the charges and the loans. Continue reading if you want to find out more about the predictions, and the possible laws that are going to help people around the world survive the crisis.
What are pawn shops?
In the United States alone, there are more than 10 thousand pawnbrokers, and the statistic shows that they serve more than 30 million customers. The industry weighs almost 15 billion dollars, and during the pandemic, more and more people are pawning their goods to get some loans.
By definition, these places work in a way that a customer can come in, pawn anything they have, and in return, they will get a loan. The difference between these places and the traditional money lenders is that the whole process is easier, faster and it does not require a lot of documentation. Anyone over the legal age can come to the shop, and they can get a sum of cash, depending on the goods they offer.
With the collateral you give, the lenders make sure that you are going to repay your bills, and customers usually have a limited amount of time to pay back the money they’ve borrowed. You won’t have to go through excessive checks, and no matter what your report is, you will be able to get some money.
The negative side of these places is that you will never get your capital’s worth, and the items are usually accessed at a much lower price than their actual value. In the past, the rates have been really high and customers and up returning almost as double as they’ve borrowed.
If we compare several lenders, we will notice that the pawn shops are somewhere in between when it comes to interest rates. They offer a lot higher fees when compared to traditional banks, but they will not go as high as title loans or anything similar. The great thing about them is that the rate will not go up if your credit score is bad, and if you already are in debt, this is your best bet.
As we already mentioned, when you offer collateral, the lender is protected, and even if you don’t pay back your loan, they will still not lose any money. The issue that comes during this difficult time, is that people are pawning valuable items they have in their homes, and when they lose their jobs, customers are not able to pay back the capital they own, and they lose the items that may have been in their possession for generations.
ExpressPawn suggests that when the future is unstable, your best bet is to pawn some valuables, get money quick and easy, and when you pay back your loan, you will be able to get those valuables back. To make sure you are not going to get tricked, you should do your fair share of research, and look for a shop that does not offer rates that are too high.
The studies have shown that the annual percentage fee can vary between 15 and 250 percent, depending on the collateral you offer and the place you choose to borrow cash from. Once again, you should never settle for the first place you find, and you should always test several options out, especially during the crisis. Nowadays, many places have increased the APR to about 300 and even 350 percent, just because people have a harder time paying back the loan.
Many countries are trying to protect people and do everything they can to make this period better and easier to go through. Because of that, some governments are thinking about lowering or flattening the rate the pawn shops get when they lend money.
Thailand was the first country that suggested it, and in April they made a law where the interest rate was reduced, and the pawn shops had to agree to flatten the charge. This change helped the customers because they didn’t have to pay back more cash if they choose to go for a longer period. Now, the same charge applies no matter if they choose to pawn their goods for one or several years.
Since then, other places in the world started following their example, and even though there are no executive laws, many shops have agreed to either stop charging a progressive fee or to lower the overall fee.
The state-run places are required to change their fees to no more than .12 percent per month, which even though will affect the profits these places make, will still help people get back on their feet.
If you are thinking about offering collateral to get a loan, there are a lot of things you need to consider. The first is your current place of work, and if you can keep up with the payments no matter the additional rate you are going to be charged. The first rule is to never borrow more money than you can pay back, and the monthly charge should never be bigger than one-third of your paycheck.
In case you decide to go with a pawn shop, always do a lot of research, and find a place that will give you the options you need. Know that most of these places offer you the possibility to sell your goods instead of just pawning them, so that might be a better option in some cases. Hopefully, we will get out of the Covid-19 crisis, and things will get back to normal quickly.