Banks, Pawn Shops, Money Lenders: What’s the Difference?
Nowadays, there are many ways you can get money in the shortest possible time when the situation calls for it. You can go to a bank, a moneylender or a pawnshop.
However, which one should you pick for your need because if you picked the wrong source, you may find yourself suddenly unable to pay back what you borrowed. For example, if you ended up signing a loan with a loan shark, you may find yourself in trouble with all the fees they may charge you.
So, what is the difference between these three and which one should you pick between them?
Since they were established, banks are the most reliable source for credit anywhere. Each bank has their own features and if you are considering to get a personal loan, retail banks offer a wide a variety of loans to choose from depending on what you need.
Aside from loans, they also offer other products and services, which would be open to borrowers when they pass the requirements set by the bank.
Private banks, meanwhile, serve the top-grossing individuals who require specific services. The loans offered by these banks require a valuable collateral. It could be an expensive supercar, wine collection or a high-value property.
Since banks are official sources of credit and they have been lending credit to borrowers for centuries, they adhere to strict government and industry policies before they lend to potential borrowers.
Banks are also offering revolving credit facilities like credit cards so some borrowers can use it for their expenses or money problems without having to apply for a personal loan.
High loans are possible for banks to grant borrowers and they come with low-interest rates. Most of these high amounts of loans are for educational loans or housing loans. When you need to pay the loan, you simply charge it to your bank account directly, mailing it to the bank or use the ATM to pay for it. Some will require you to pay your loans in person.
Unfortunately, since banks are very strict when it comes to who they allow borrowing, not everyone can get a personal loan from a bank. Borrowers will need to pass a Debt Servicing Ratio, as well as the minimum income requirements for the loan being applied for.
Banks also consider one’s credit rating and history, which can be a problem for those who already have bad records from previous loans.
Just like seeking a collateral loan, pawnshops would get a collateral from you – in the form of jewelry, luxury products, and others – before you are given a cash loan. The amount you may receive varies and it can be from 60 to 80 percent of the total value of the item you are pawning.
For instance, if your bracelet is worth $20,000, you may be able to borrow up to $80,000. Once you agreed on the price, you can leave the item at the pawnshop and return when you need to pay the main amount you borrowed and its interest within 6 months. If you fail, it can be auctioned off.
Interest rates can increase from 1% to 2% as months progress. As you repay the loan, the pawnshop will extend the deadline for auctioning the item depending on the terms listed in your pawn slip. Pawn shops also allow people to sell off their valuables directly, but it would be worth less than what you expected.
If you wish to borrow from a pawnshop, you simply need to present your ID and the item you plan to pawn. They will not need anything else because if you failed to pay them, you will lose the pawned item you left them. There is also no impact on your credit history if you failed to pay your pawned item.
Pawnshops have high-interest rates which can be at 1 to 2% per month. You can also just qualify for a one-time loan and there is a limit to how much the pawn shop can lend to you.
If you are just going to borrow around $10,000 or lower, a licensed moneylender may be ideal as they offer personal loans that would cover your needs. However, some moneylenders may offer a higher amount, especially if the client in question is a good client.
Just like banks, moneylenders will require borrowers to submit all the documentation necessary to check whether the moneylender could let you borrow from them. The total amount which can be borrowed or the interest rates that will be applied will depend on the moneylender’s choice.
The interest rate for loan repayments with moneylenders vary and they usually require a fixed schedule for repayments. Terms can be negotiated before a borrower can agree on the loan.
If you have a bad credit history, moneylenders are the way to go. They are not as strict when it comes to looking into your credit history and they will be open for inquiries 24/7. You also do not have to go to the office personally to apply and their approval would only take up to 24 hours or more. It may even be possible that you can seek an extension to your payments in case you find some trouble that prevents you from paying on time.
The high-interest rate is the main con for anyone planning to use a moneylender to seek personal loans. In Singapore, licensed moneylenders can add up to 4% interest charge for repayments and an additional 4% to late payment charges.
When in need of money, you should consider every option available and criticize them to see if they can work with your requirements. Each one of the three options above come with their pros and cons and their effectiveness as a fast cash source can vary from person to person.
If you see which one will work well for you, stay committed to it and ensure you will not fail to do repayments or in the case of pawned items, claim your items again.