If you want to raise quick cash without getting involved in the hassle of banks, then a pawn shop is a seemingly ideal stop.
Or is it?
How pawn shops work
When you are in need of cash, you head to the pawn shop with one of the following items- jewelry, musical instruments, electronics, photography equipment. You express a need for money. The pawn shop owner listens, checks your items, and agrees to loan you approximately 25-60% of the item’s resale value.
You are free to go with a pretty short time frame for repaying the loan. Which, by the way, (often) has high-interest rates charged on it.
Why they aren’t the best option
For once, if you fail to repay the loan, your property becomes the property of the pawn shop owner. He can then sell it or keep it as he wishes.
Secondly, the exorbitant charges and interest rates can take people’s breath away. Also, you’ll need to pay extra money as storage costs and insurance fees.
The loan repayment will happen as and when it’s meant to. But, all this while, your item is being stored at the pawn shop only gods knows in what condition.
Pawn shops aren’t self-storage units where your items are taken in with a promise of safekeeping.
The pawn shop owner is only concerned with the money. If he sizes you up as the type to faithfully repay the loan, he would safeguard your item as well. Give and take. If not, then your items might be treated a little more harshly or carelessly than you’d like.
All items in the shop are vulnerable to security and weather threats. There’s the possibility of fire, of thieves, of a sudden insect infestation. This is because a pawn shop isn’t fitted for storage; it’s fitted for loaning. There is no 24*7 security, no pest control methods, no perimeter patrolling, etc.
If you are storing a guitar or any other musical instrument, temperature and humidity levels might affect it design and make. The wood might inflate or the strings might get rusted because the shop is located in an area of high temperature and humidity.
Jewelry and other items made from precious metals might catch a stain or a hint of corrosion. Electronics might malfunction or go defunct. Your vintage comic book might catch a tear here and there.
The onus of safety, thus, lies upon you.
Couple this with the high-interest rates (more than borrowing through other methods), the risk of losing your items, and the extra amount to be paid if you want to rack up security and insurance. Not the most financially viable option when initially that is what it seemed to you.
Hence, avoid pawning as much as possible and find alternatives. For storage, you can always rely on a self-storage unit. For loaning money, you can head to a bank first because be it the short term or the long term, pawn shops aren’t the best option for you or your precious items.
Be smarter and wiser than this.