He has narrowed down his borrowing options to the two that seem best. One is to borrow money from a pawn shop and the other is to borrow online from a company like Maxlend Loans. In one respect, he likes the idea of securing his loan with collateral and working with a local business, which makes him lean toward the pawn shop option. On the other hand, he likes the convenience of the online option along with being able to pay the amount back over several months.
Both of these businesses have relatively high finance charges because the probability of default is relatively high. Pawn shops can sell the item put up for a loan, but they do not make a great deal of profit when doing so. In some cases, the item never sells until they price it at a substantial discount. Installment loan companies are able to offer payment terms with affordable amounts paid monthly or twice monthly.
The Risk of Losing a Belonging
A pawn shop will not do a credit check or ask for verification of income, while an installment lender might do so. Yet there are two distinct disadvantages with pawning belongings. One is the risk of losing a possession that the person hoped to keep, since the shop can sell this item if the borrower doesn’t at least pay the interest as required.
Interest and Principal
The second is that the borrower must pay interest every 30 to 60 days, but that payment doesn’t include any of the principal. It’s possible to keep paying interest month after month without ever paying down the balance of the loan. Installment products, in contrast, include both the interest and part of the balance with each payment.
Usually, a consumer can obtain a larger amount through an installment loan. The pawnbroker is limited by how much the item could be resold for. Used jewelry can be valuable, for example, but it may only literally be worth its weight in gold. The market for resale of fine jewelry is not large. The same is true for used computers and other electronics.