Since the early 1990’s, the use of pawnshops has grown approximately 80 percent. In light of recent reality shows, using pawnshops has been seen as a legitimate resource for personal loans. Pawnshops can be used without resulting in any consequence to a consumer’s credit rating. Pawn loans are secured by physical collateral. This means that no relationship with national payday loan operations is necessary for people that are seeking these types of opportunities. In the recent decade, the proliferation of payday loans has increased the burden on these borrowers and their credit ratings. Pawn loans can be extended by paying the interest, and most loans become due after 60 and 90 day increments.
In addition, relationships with pawn shops can become personal, and other terms can be agreed upon. Before the 1960’s, pawn loans were the most significant source of personal loans. This was even more than banks at the time. Their resurgence has been buoyed by the recent economic downturn. This slate of events has caused financially burdened Americans to seek loans much more frequently. Payday loans have exploited this turn of events by charging interest rates that are just below usury in some places. In response, many municipalities are regulating and, in some cases, outlawing payday loan services.
Most pawnshops are locally owned and operated also. This means that by utilizing these services, people are contributing to their local communities. The local economy will impact the customer more readily. By participating in the local economy, consumers will also benefit from the impact of a growing economy. Most payday loan services are national conglomerates that may not be based in America. This means that they contribute very minimally to the local economy, and the community in which they operate. This is the case even in small and rural areas. Pawnshop loans are repaid at rates of above 80 percent. This is due in large part to the collateral system, and the relationship that has been built between personal pawnbrokers and their customers.
This high loan redemption rate means that customers are not burdened by very high annual rates of payday loan companies and the resulting credit rating reduction that occurs when payments are made late. This interest rate is such a boon to payday loan companies that many of these companies charge a penalty for paying back the loan early in its entirety. Among other things, this makes pawnshops superior to payday loans significantly. When considering the hazard to credit ratings, accessing a pay day loan can be an expensive pursuit that only leaves the borrower in significantly more debt.