Is a pawn loan like a cash loan?
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UPDATED: Jul 5, 2012
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Pawn loans and cash loans are very different types of financing.
For starters, a pawn loan is a secured loan. When pawning, a borrower will hand over a valuable asset. Due to the open nature of pawning, this asset can be almost any item that has value. Examples of items that can carry value are jewelry, electronics, antiques, vehicles, and memorabilia.
A pawn shop will loan a borrower money equal to a fraction of the collateral’s value. This type of financing will accrue interest until the borrower returns to repay the loan and its interest—at which point the borrower would be given back his item used as collateral.
Should the borrower not return by an agreed upon date then the pawn shop will seize ownership of the asset put up as collateral, and resell it to make a profit. In some ways, this consequence is a benefit for borrowers since they will not be subjected to an onslaught of collection calls or overdraft fees.
To better understand how this type of borrowing works, consider a borrower who has a television worth $500. If this borrower needs money, a pawn shop might give him $200 in exchange for the television. The borrower would likely be required to return one month later with $200 plus interest in order to retrieve his television.
If the borrower doesn’t return, then the pawn shop would be left with no option but to sell the television in order to cover the $200 loss. Since the $200 loan amount was only a fraction of the television’s $500 value, the pawn shop should have no problem making their money back.
Pawn loans are relatively easy to get. No credit check, income verification, job, or even bank account is required. However, most of these loans do typically require a photo ID and social security card.
Cash loans, on the other hand, are considered unsecured financing. Aside from a paycheck and a promise, there is no collateral required for a cash loan. The only thing the cash lenders require of borrowers is employment and to have a minimal amount of money in their checking account. Anyone employed and with a checking account can receive a cash loan almost instantly in today’s internet-driven world.