Pawnshop May Not Be as Better as You Think

When a financial emergency arises, you immediately rush to financial institutions to seek help. Still, not all are fortunate enough to get this help from the bank due to an impaired credit standing. Thankfully, direct lenders are out there who can help you with borrowing money.

Although direct lenders are known to lend you money in case of a bad credit rating, it does not allow for an interpretation that they will not consider your affordability. If your financial situation is dire, you will likely be turned out.

You may not have enough income to pay back the whole of the debt, your credit score may be inferior, and you have a CCJ on your credit file. There are several reasons for not having a loan signed off on. If so, you only have an option to turn to, and that is a pawnbroker.

Facts about pawnshop loans

A pawnbroker is a person who lends you money in exchange of collateral that they can liquidate in case you fail to pay off the money on time.

It is essential to note that the size of the loan depends on the amount of the collateral. They will not determine your affordability, nor will they check your credit report. It does not matter because they offer secured loans and can recover money by selling your asset you put in as collateral.

Pawnshop loans carry high-interest rates although they are secured loans. Further, the term of these loans are concise. If you are not careful, you will end up losing your collateral despite paying a substantial amount in interest.

The risk associated with pawnshop loans

Even though you put in the security of high worth, it does not guarantee that you will get enough money to fund your needs. A pawnbroker has nothing to do with your financial emergency. It is their business, so they will try to make profits.

If you go to a pawnshop, you will get very little money. For instance, you cannot expect to be offered more than £20 in exchange for collateral worth £100. It may seem appealing during a financial emergency, but you can lose a significantly high amount in case you fall behind repayments.

Alternatives you should seek

There is no denying that pawnshop loans are not worthwhile because they are subject to high risk. Not only will you get a nominal amount of money, but you will also bear the risk of losing the collateral. Of course, you cannot go to banks in case of a poor credit standing, but direct lenders can help you. Some direct lenders also invite applications from borrowers with very poor credit and those who have a settled CCJ.

As long as you do not need a large amount of money, you can apply for short-term loans like instant cash loans, payday loans and text loans. Of course, you will get a deal with a high-interest rate due to a bad credit score, but they are unsecured. It means there is no risk of losing the collateral. Some direct lenders allow borrowers to pay off the loan in fixed monthly instalments. However, the size of the loan needs to be more than £1,000.

It can be easy to lose your composure during an emergency, but you should try to examine the pros and cons of all options available to you so that you do not face financial problems down the road. You can conclude that a pawnshop loan is terrible. It depends on your financial circumstances and financial behaviour.

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