Here Is a Look at Pawn Shops and Misconceptions In Singapore
For a long time, pawn shops have come across as avenues for rural banking in the global south. This is because most of the people in poor countries do not have access to the formal global financial sector. As such, it is not surprising that pawn shops and misconceptions in Singapore have a close association.
Pawn broking in Singapore
Pawn shops are a common feature of the financial ecosystem of Singapore. Interestingly, this might seem out of place since Singapore is the most expensive country to live in worldwide. Also, a sophisticated economy as Singapore has a robust banking ecosystem that should take care of all the financial needs of its people. Nonetheless, the standard of living does not imply that people might not need urgent loans. Sometimes, the need for an urgent loan comes at a time when one cannot borrow from a bank or a moneylender. Therefore, the only option available is a pawn shop.
Interestingly, pawn broking became popular in Singapore after the 2007/8 financial crisis. In 2012, for instance, Singapore’s pawn shops gave out $644.7 million SGD in loans, which is the highest in the history of the industry. Interestingly, business was so good that pawnbrokers like ValueMax went public.
The history of pawn shops in Singapore is long and checkered. Previously, people believed that the shops were for poor people. Notably, you had to be in serious financial distress to seek out the services of the shops. While this is still true today, not all pawn shop customers are poor people. For example, people that earn over SGD 3,000 per month sought out loans from pawnshops.
How it works
Pawn shops are common worldwide. In the US, there are 6,755 pawn shops as of 2019. Notably, the sector has experienced a 3.1% growth in business year-to-date, while the annualized growth between 2014 and 2019 is 1.5%. Evidently, Singaporeans are not alone in depending on pawn shops to plug budget deficits.
Generally, a pawn shop is a business that gives out loans to individuals in return for collateral. Individuals pledge a range of items like jewelry as collateral, which they redeem on loan repayment. The pawnbrokers calculate the size of the loan based on the value of the collateral. Oftentimes, pawnbrokers in Singapore offer loans in the range of 60% to 80% of the value of the collateral item.
If you give a television worth $100, the pawn shop can give you a loan of between $60 and $80. Usually, the loan lasts for six months. If you repay on time (loan plus interest), you get the TV back. However, failure to fulfill the loan within the agreed time compels the pawn shop to sell the TV retail to recoup the loan amount. Generally, the process is simple.
Once you visit the pawn shop, the valuation process of the collateral item begins. Oftentimes, the item is valued according to its second-hand price in the market currently. Next, you get the cash as per the pawnbroker’s policy. What remains is for you to redeem the pledge or to forfeit its ownership.
Pawn shops and misconceptions in Singapore
It is no secret that pawn shops all over the world attract suspicions and misconceptions, no less in Singapore. Particularly, the businesses are subjects of the myths because they do not operate like formal financial institutions. Having been cultured to accept that the way banks operate is the gospel standard of finance, it is easy to vilify any other similar business that operates out of the ordinary.
Here are some pawn shop misconceptions in Singapore
- Pawn shops charge astronomical interest rates
One of the biggest misconceptions about pawn shops in Singapore concern the interest charged on loans. Interestingly, many Singaporeans fear to engage the businesses because they believe that they charge ridiculous interest rates. Far from it. On average, pawn shops in Singapore charge 1.5% as interest rate on loans. ValueMax, one of the largest pawn shops in the country, charges a promotional interest rate of 1% for the first month, then 1.5% onwards.
On the contrary, banks charge approximately 6% annually on personal loans. However, the rate depends on a host of other factors, including your creditworthiness, the tenure of the loan, and the size of your income. A few banks like HSBC offer less punitive interests at 3.7% annually on personal loans. Therefore, it is not true that pawn shops are exploitative.
- Pawn shops are cunning
For a long time, people have associated pawn shops with fraudsters. The myth is that the businesses are out to cheat people, especially by offering ridiculously low value for the collateral items. On the contrary, reputable businesses explain to the customer the process they used to get at the quoted value. Just like any other business, the pawn shops want you to come back again so that they can remain in business. Therefore, they do everything according to established professional standards to your satisfaction.
- Pawn shops try to keep collateral items
Once you hock your TV or gold chain, it is up to you to pay back the loan and interest in full. However, some misconceptions in Singapore hold that pawnbrokers try to hold on to your items. False. It is in the best interest of the pawnbroker that you pay the loan in full within the agreed time. This is the only way they get profitable and stay afloat. Also, they have to treat you well so that you may pawn with them again.
- Pawn industry is unregulated
Singaporeans might avoid pawning because they fear they might lose their possessions. This fear stems from the misconception that pawnbrokers are unregulated. False. The Pawnbrokers Act 2015 provides the legal framework for the setting up and operation of pawn shops. Additionally, the legislation sets out the licensing procedure for pawnbrokers.
The pawn industry might have had a bad reputation in the past, but that is in the past. Also, the industry is no longer a reserve of the poor. Interestingly, many Singaporeans are benefiting from it in terms of accessing funds during desperate times. The business of pawn broking is improving yearly, meaning that Singaporeans are increasingly discovering the usefulness of pawn shops. However, this could be evidence that they are learning to differentiate misconceptions from facts.