This time of year with the pressures of Christmas shopping, many people get desperate for some extra cash. One way to get quick money is with a pawn shop loan. If you or anyone you know are thinking about pawning prized possessions, I have two words of advice: WATCH OUT!
Did you know that even if you pay off your loan on time there is no guarantee you'll get your stuff back? Why? Because that's the way some pawn shops operate. They actually have an incentive for keeping your stuff.
When you take out a pawn shop loan and leave your property as collateral, you will most likely sign a loan agreement which includes a clause that reads something like this:
"In the event your property is destroyed, lost or stolen you agree to accept the amount of the loan as full settlement."
Pawn shop loans are often much lower than the value of the collateral. So you can see why they might "lose" your stuff. I investigated one case now where a couple pawned a diamond ring. They claim the ring was worth $6000. They got a $600 loan. After paying off the loan they asked to get their ring back.
"I'm sorry, that ring is missing. I believe it was stolen." They were told.
"Then we expect to be reimbursed." They said.
"I'll gladly give you back the $600 you borrowed. You can keep that money."
"But that won't cover replacement."
By the way this is the second complaint I've gotten on rings lost at pawn shops. In each case, the loan was small and the rings were valuable. I can't say the pawn shop clerks stole the rings but it sure looks suspicious.
The more important issue is the loan agreement. Why would anyone put themselves at such a disadvantage when asking for a loan? Why would anyone agree to settle for the amount of the loan? You are making it profitable for someone to steal or lose your stuff if your loan amount is a tiny fraction of the collateral.
Here are some tips:
-If you must pawn property, make it stuff that can be etched with identification marks. That makes it difficult for people to buy and sell it on the "hot" market.
-Get your valuable property appraised before pawning it as proof of what it's worth.
-When pawning valuable property, accept no less than 65% loan to value.
-Negotiate terms. You don't have to accept conditions that are unfair.
-The best advice of all ... plan ahead so your not caught short of cash and in a hurry.