There may come a point in our lives where we might need to seek additional financial help. Where do we look for financial help then?
Friends, family, bank loans, licensed money lenders are all great alternatives. However, there is also another viable option: Pawn shops. While often overlooked, pawnshops also offer you great investment opportunities.
However, like all things, you have to be prepared first. Doing the necessary homework and research is necessary. If you don’t understand how pawn shops work and how much interest they charge, you may end up losing money in the long-term.
Lucky for you, we’ve done our due dillgence and broken down all you need to know about pawn shops in this article!
How Do Pawn Shops Work In Singapore?
Pawnshops work like this: you entrust a pawnbroker with one of your valuable items so that you can get a cash loan. You’ll have to repay the loan with interest by an agreed-upon date so that you can get your pledge back. If you can’t repay your loan, the pawnbroker will resell your pledge or melt your jewellery to create new ones.
Usually, this period is about six months. However, each time you pay an instalment, you extend your repayment period by an extra six months. The problem is that your interest rate will grow too, so, if you can’t repay your loan within the assigned period, it’s best to surrender it all together. Otherwise, you’ll end up paying double or triple its value because the loan you receive amounts to about 60% of the market value of the item you’re pawning.
Each pawn shop has a valuer who decides how much your pledge is worth. Therefore, pawning is a type of collateral-based loan.
Pawn Shops In The Past Vs. Pawn Shops Now
Pawning is a 3,000-year-old activity. Historical sources show that pawning was popular throughout the world, but especially lucrative in the Roman Empire, Greece, and China.
Peasants pawned their clothes to get loans because clothes were the most valuable things they had. That’s why pawnbrokers got the reputation of being the “poor man’s bankers.”
Singapore was founded in 1819 and pawnshops appeared some five years later. They were strictly regulated, though, so that pawnbrokers couldn’t steal from poor people. As such, the pawnbrokers had to acquit a $480 fee to the British crown.
More regulations were adopted through the Pawnbrokers Ordinance in 1898 because pawnshops were thriving in the area. However, the Great Depression in 1929 and the two World Wars set back pawnshops.
Today, the Pawnbroker’s Act ensures that all Singaporeans get legal and top-quality pawnbroking services through the almost 280 registered pawn shops on the island.
Besides, in recent times, pawnshops don’t have the same “poor man’s bankers” stigma. Popular TV shows also contributed to creating a new image to pawnshops, which are now seen as true oases of investment for finance-savvy people. This is why many businessman and white-collar people go to pawnshops nowadays.
These two different mentalities influence everything about pawnshops, including their designs. For instance, in early times the staff and the customers were separated by metal bars because the poor who needed money were considered dangerous. Today, pawnshops offer ample spaces and display all their top products, including gold and jewellery.
What Do Pawn Shops Accept As Collateral?
Pawnshops accept a lot of valuable or useful items, but especially those with a high potential of being resold. As such, you can pawn things like:
- Jewellery, especially those made with precious metals and diamonds
- Branded items, such as luxury bags
- Gadgets such as tablets, smartphones, laptops, and iPods that resell for at least $200
- Power tools that make at least $100
- Firearms, if you have the right legal paperwork
- Rare collectables, such as coins and notes
- Antiques and memorabilia
Pawnshops Interest Rates: How Is It Calculated & Penalities Imposed
With that in mind, you’re probably curious about pawn shop interest rates. After all, you want to get some benefits from pawning your things, apart from quick money.
So, the first downside is that there’s an interest rate you’ll have to consider. The other downside is that your rate grows each month you fail to repay your entire loan.
The majority of pawn shops in Singapore practice a 1% rate during the first month and a 1.5% rate for the second month.
To calculate your rate, you can use this formula: Interest fee = (Loan amount) x (Number of months for the loan) x 1.50%. You can even get at 9% after six months.
Therefore, the longer you take to repay your loan, the more it will cost. If you can’t repay your loan within a year, it’s probably best to give up your pawned product altogether, unless it has sentimental value.
The other disadvantage is that you can get lower interest rates at most banks or moneylenders in Singapore. Their interests are about 1%, you can borrow bigger sums of money, and you can take longer to repay them.
That said, the good news is that pawnshops have more advantageous interest rates that credit cards, which will set you back by 25% – 26% per annum.
Pros And Cons Of Pawnshops
If you’re still unsure about pawn shops, let’s do a quick review of the pros and cons.
- Pawnshops are bureaucracy free: They won’t ask you for proof of income and they won’t look at your credit history. All you need is to have something valuable that you can use as collateral.
- Pawnshops don’t affect your credit rating: If circumstances limit your ability to repay your loan, this is where you won’t have to worry. With pawnshops, you won’t get a stain on your credit history because pawning isn’t included in any official documents. As such, pawnshops are better than banks or moneylenders if you’re unsure whether you can repay your loan.
- Pawnshops work fast: You’ll get your money instantly, unlike with banks that have a longer waiting period.
- Pawnshops are cheaper than other options for the first few months: For instance, some credit cards have interest rates of about 2%, while some moneylenders in Singapore have interest rates of 4%. However, pawn shops practice a 1% and 1.5% interest rate for the first and second month respectively.
- You can get some money even if you can’t redeem your goods: According to the Singapore’s Pawnbrokers Association, “Any successfully bided pledge, which has been sold for more than the amount of loan plus interest and approved administrative fee, will generate a surplus to be returned to the pawner.”
- Pawnshops have a higher interest rate than personal loans: The maximum interest rates on personal loans are 4%. However, if you can’t redeem your pledge in a few months, you may end up paying double or triple that amount.
- You’ll lose your pledge if you can’t repay it: Of course, you can lose any collateral you guarantee your loans with. However, exponentially increasing interest rates for pawnbroker loans increase the possibility of this happening.
- Banks and licensed moneylenders don’t force you to put up collaterals for small sums: Besides, you can also borrow bigger sums of money even if you don’t have anything valuable. Just think that, if you don’t have a pure gold family heirloom, the max amount you can get is around a few hundred dollars.
- You’re getting less money than if you were to sell your things: That’s because you’re only getting 60% to 80% of your pledge’s worth. So, if you’re not planning to redeem your pledge, selling it is a better solution.
Here’s An Example Of How You Can Exchange Your Valuable For A Loan
If you need a more practical example of how pawnbroking loans work, here’s what you can expect. Let’s say you have a medical emergency and you have to foot a bill of around $5,000. You don’t have that much in savings, and your credit score doesn’t allow you to get a loan quickly.
As such, you pawn your yellow gold Cartier love bracelet, which costs around $8,600. You only get 60% of that amount ($5,160), though, but you can repay your $5,000 bill.
Next, you have six months to repay your loan so that you can get your bracelet back. The first month, your instalment rate is 1%, meaning $50 apart from the original $5,000. If you can redeem your bracelet in the first month, you’ll end up paying $5,050 for it.
But most people can’t do that.
Let’s say you have an average monthly salary of $5,500 a month. Your utility, transport, and food bills add up to about $2,000. So the ideal case is that you can pay $3,500 of your $5,000, although not many people can restrict their monthly expenses so rigorously.
So, you’ll pay $3,500, $50 of which is the interest rate. You now have to pay $1,550 at a 1.5% interest rate, aka $23.25. Basically, at the end of the second month, you’ll pay another $1523.25. Add the two sums up and you get to $5023.25.
That doesn’t seem a lot, but what if you can’t repay your loan in two months? Let’s say your injury requires you to take unpaid leave from work, plus you have to fork out money for medicine or physical therapy.
In that case, you can end up paying about $16,000 by the end of one year. That’s simply not worth it. With that in mind, here are some other options to pawn shops:
- Personal loans
- A licensed moneylender that doesn’t take your bad credit into account
- A credit card loan
- Considering a side job
- Asking your friends and family for a loan
- Cash-out refinancing loan on your home
- Selling your valuable things altogether
Where To Buy Gold And Silver Coins In Singapore?
You can easily buy gold and silver coins from pawnshops in Singapore because they’re cheaper, considering that GST won’t be imposed on them. The disadvantage is that the gold and silver you get from pawn shops aren’t new.
Currently, one gram of gold in Singapore is now $78.72 per 24 karat gold. Conversely, a 24-karat gram of silver costs $0.83.
Apart from pawnbrokers, you can also buy gold and silver coins at banks. Other options are to open a gold savings account or to buy gold certificates from a bank.
Visiting Pawn Shops Vs. Licesned Money Lenders To Repay Your Loans Quickly
While there may be pros and cons to visiting a pawnshop, there are plenty of situations when pawn shops are a convenient choice. For instance, if you can repay your loan quickly, you want to buy gold, or if you don’t want to mess your credit rating, choose a pawn shop.
On the other hand, pawn shops might not be the best option due to their higher interest rates over time and the collateral needed. During such instances, especially when you require a larger sum of money, it pays to turn to a trusted financial institution. Having served thousands of satsified borrowers over our years of service, Lending Bee fully recognises the needs of each individual. We understand that different individuals have varying fianncial situations. Regardless of your credit rating, we believe in making credit accessible for everyone. Our unsecured loans of up to $100,000 and secured loans of up to $2,000,000 will ensure that you receive the financial help you deserve, swiftly.
Apply for a loan with us today. Alternatively, you can download our application on the App Store or Google Play store for a seamless loan application experience. We have collaborated with the Ministry to incorporate Singpass’s MyInfo into the application, allowing for a faster loan application process.