Basics of borrowing from a pawnshop
An individual who requires cash urgently can turn to several sources for the amount that is needed. One option is to approach a bank for a personal loan. DBS Bank offers these loans at an effective rate ranging from about 13% per annum to 20%. You would have to wait several days for your loan application to be approved.
If you require money right away, you can use your credit card to draw cash from an ATM. But these advances can be prohibitively expensive. The bank will charge an interest rate of 28% per annum and also levy a “cash advance fee,” which could be as much as 6% of the amount you withdraw.
If you don’t have a credit card or your card is already maxed out, you could take a loan from a moneylender. However, this should really be your last resort. Singapore laws allow moneylenders to charge interest at a rate of up to 4% per month. You may also have to pay other charges and fees.
A better option may be to approach a pawnshop for a loan. Of course, you should have some security to offer. Most people pledge gold jewellery or other valuable items like luxury watches or designer bags.
How a loan from a pawnbroker works
The process of getting money is quite simple. You need to just take your gold ring or Rolex watch to the pawnbroker who will ask you to fill out a form and then immediately carry out a valuation. The loan that you get will not be for the full value of the item that you are pledging. Expect to receive between 60% and 80% of what it is currently worth.
You need to carry your identity card with you. The pawnshop will not conduct a credit check as it is advancing money on the security of the items that you are pledging. This makes the process very quick.
The pawnbroker will usually provide you cash on the same day. You will have to bear interest on the loan that you take. The maximum rate is 1.5% per month. Pawnbrokers are not permitted to charge more than this.
The loan is for a period that may extend up to six months. You can repay the amount that you have borrowed at any time within this period and take back the item that you have pledged. You also have the option of taking a fresh loan after six months. But, to do this, you will first have to pay the interest that is due on the original loan.
Remember that the pawnshop is not obliged to renew the loan after six months. In any case, the item that you have pledged will be subjected to a fresh valuation. You may be eligible for a lower amount the second time around. Why is this? Say, you have pledged jewellery and the price of gold has dropped in the last six months. This will result in the pawnbroker offering you a lower loan amount.
Your pawn ticket
At the time that you are given the loan, the pawnbroker will give you a pawn ticket. This is the document that proves that the item that you have pledged is lying safely in the pawnshop.
The pawn ticket will include the following data:
- Information to identify the borrower. You will be referred to as the “pawner.”
- The loan amount and the rate of interest.
- A description of the item that you have pledged.
- The valuation that the pawnshop has provided.
This document will also mention the date by which you need to redeem the item that you have pledged.
What if you lose the pawn ticket? If this happens, you will be obliged to visit the pawnshop and ask for a replacement. This will be done once the pawnbroker is satisfied that you are the person who is entitled to redeem the pledge.
What if you can’t repay the loan?
If you are unable to redeem the item that you have pledged or if you simply don’t turn up to claim it, the pawnshop will sell it to recover its dues.
But this will not happen immediately. The pawnbroker will serve you a “notice of forfeiture” within two months of the end of the redemption period. One month after this, the item that you have pledged will be sold.
What if the sale proceeds are more than the amount that is due to the pawnbroker for the principal amount of the loan and the interest? It is the pawnbroker’s duty to write to you with details of the excess money. This sum can be claimed by you.
In the event that you do not claim it, the pawnbroker will turn it over to the government. You can recover this sum within a period of six years. At the end of this period, the money will belong to the government.
A thriving business
There are over 200 hundred pawnshops in Singapore. This number has been rising steadily over the years. Every year, these pawnshops make loans worth billions of dollars.