Although it has a history that goes way back, the concept of pawn shops and pawn brokers is still in use to this day. People often tend to find themselves in situations where they need the money urgently. In those cases, going to a bank is rather a time-taking process. They prefer to use the opportunity to turn to pawn brokers which act just like the banks, but they operate differently.
There are different kind of pawn shops all around the world. Some of them are fairly low interest pawn shops, while others are only fair.
How do pawn shops work?
To better demonstrate the working concept of pawn shops, let’s suppose that you need some money and you decide to go to a low interest pawn shop. Now, when you ask them to lend you some money, they want something to ensure that you are going to pay them back.
As it is seen with the banks that they take houses or land as collateral, it works in the same way in pawn shops. The only difference is that, instead of houses or lands, they take some other valuable items. These valuable items include gold, silver, coins, mobile phones, cameras, television etc. They assess for the price of the item and lend you some money while taking out the interest that is enforced by the law or company’s policy. Another reason to buy gold is you can in cash your gold in time of crisis. Taking a loan is a difficult, complicated and long process. Loan lends 75% at LTV whereas You can avail Cash for Gold which is an instant process & would be 99% around the actual value
Gold as collateral for pawn shops
Although, it has a lot of other uses such as jewellery and ornaments, Gold is also used as a currency. From the ancient times, people used to deal in gold for different trading purposes. The concept is still in use and as it is one of the most precious metals, gold is being sold and also being used as collateral for pawn shops to the date.
The process of borrowing some money from pawn shops by loaning gold is very similar and easy to understand. The person that needs the money, goes to a pawn shop and asks the pawn broker to lend him some money. The pawn broker takes the gold and gives the person the money after calculating the actual amount of the gold and taking out the interest.
Calculation of the interest
The process of calculation is fairly simple and quite easy to understand. The interest rates are totally dependent on the individual pawn shops. When they take the gold, pawn brokers calculate the actual value of the gold. The interest rate is usually 20-30% of the actual amount.
So, if the gold that you brought is worth a $1000, the pawn shop will give you $700 and keep the gold as collateral. Some low interest pawn shops might offer you more money by lowering their interest.
People from around the world look for pawn brokers for their needs. The concept is still very much in use. Although some pawn shops might offer you to buy some items from their own shops instead of giving you money.
Note: It is very important to understand that if you are unable to pay the money back to the pawn shop in the specified amount of time, they are free to sell the gold.