Pay The Interest
You can pay the broker the interest ($20), which renews the loan. The broker keeps your jacket, but will not put it up for sale. You have another two months to either raise the $120 to get your jacket back, or raise another $20 to renew the loan again. You can renew the loan indefinitely, by paying the interest at the end of each loan period. [Note that if you do this for a year, you will have paid $120 in interest alone, and you still won’t have your jacket back.]
Default On The Loan
You can default on your loan, not pay anything at all, and your jacket becomes the property of the pawn shop. It will be put up for sale. [Note: In some states, there is a “grace period” if you forget to pay the interest on time.] You can, of course, buy your jacket back, but it will be at the store’s increased market price – a really bad deal for you.
Penalties Or Fees?
You may wonder if there are any penalties if you default on your loan and lose your pawned item. The answer is no. You are more than welcome to pawn more merchandise, even while failing to pay for some other pawned item. There are no penalties or fees. Each pawn transaction is considered separately. The pawn shop is a business, not a bank, and they are in the business of making secured loans, and keeping and selling the collateral if their clients default.
The majority of customers return before the loan period ends, pay back the amount borrowed plus the interest accrued and get their pawned items back. Pawnbrokers say that when customers borrow larger amounts of money, only about 15% default on their loans. But when the amount of borrowed money is small, say $10 or so, the default probability rises to about 40% or higher.
The Bottom Lline
When all is said and done, pawning property for cash is a money losing proposition. You are charged an extremely high interest rate. If you’re unable to repay your loan within the specified loan period, you stand to lose more money in interest, or you will lose your pawned item, for much less than it’s actually worth. Because there are no fees or penalties, you may be tempted to continue pawning your belongings to get fast cash. If you have multiple pawn transactions going at the same time, your combined interest payments might become overwhelming, putting you deeper in debt while owning fewer material possessions.
On the other hand, if the bank won’t lend you money when you really need it, and you think you can repay a pawn transaction within the agreed loan period, a pawn shop might be your best bet. Just keep in mind that there’s some risk involved.
As for shopping opportunities, there are more than 13,000 pawn shops nationwide, and most are stocked with new and used brand name items at great prices. If you’ve got money for shopping, you might pay your local pawn shop a visit.
