Obtaining a low-interest, high-principal-amount loan is like getting to pet a unicorn if you don’t have stellar ratings. That’s why many people prefer to pledge their gold and jewellery at a pawnshop like ValueMax or Maxi-Cash.

If you’re going down this road, you can obtain a sufficient amount of cash to tide you over an emergency. The best thing is you can be in and out of that pawnshop in less than 10 minutes without any bureaucracy.

But is this really the best way to go?

Read along as we discuss pawnshop loans and what you should be wary of.

Personal Loans vs Pawnshop Loans

The first issue you should consider is getting a personal loan or a pawnshop loan. But if you’re on this webpage, chances are you’re already leaning hard towards the second option because you think that personal loans are hard to repay or challenging to get in the first place.

That’s not necessarily true.

Read on as we discuss the different advantages and disadvantages of pawnshop loans compared to personal loans so that you can make the right decision.

Personal Loans PROS

Some Singaporeans prefer to get personal loans because of:

No Collateral

Unlike pawnshop loans, where you’re required to pledge your jewellery and gold to get some money in return, most personal loans are unsecured. So if you don’t want to pawn your great-grandmothers’ heirloom bracelets for $5,000, you should consider a licensed moneylender.

Because that’s the thing:

Most Singaporeans who choose pawnshops are after small amounts, often below $10,000. And even if you’re credit rating doesn’t shine now because of past financial mistakes, you can still find a trustworthy credit provider that primarily cares about your current ability to tackle your finances.

Comfortable Repayments

Personal loans feature comfortable monthly instalments on a lengthier tenure. This strict yet convenient repayment schedule offers you rigour, which is beneficial because it helps you get the reins of your finances.

For example, if your instalments are $300/ month, you have this fixed accessible amount to include in your monthly budget. As such, you can plan your expenses carefully to make room for them.

This diligent planning has two huge advantages:

  • You can become debt-free fast.
  • Your credit rating improves as you’re showing financial institutions that you’re a diligent customer.

Pawnshop Loans PROS

Here’s why some Singaporeans prefer pawnshop loans:

Lower Interest Rate Compared to Some Personal Loans

If you’re getting a personal loan from a bank, your annual interest rate can be as low as 7-8%. By comparison, the 1.5% monthly interest rate for your pawnshop loan reaches 18% in a year.

But you may not be eligible for a bank loan if your credit score is low or if you need a more significant amount of money. At this point, some Singaporeans reach out to licensed moneylenders.

Here’s a potential problem:

Licensed moneylenders can charge up to a 4%/ month interest rate. This number can make your heart skip a beat.

Now here’s the solution:

Think at the larger picture. Sure, the interest rates are higher at licensed moneylenders but remember that convenient repayment schedule with low instalment rates.

This schedule allows you to reimburse a significant amount of money without risking your gold and jewellery.

Flexible Reimbursement Schedule

Unlike personal loans’ specific tenure with precise reimbursement dates, pawnshop loans are more flexible. Here’s why:

  • You can repay your entire loan within a month, or:
  • You can prolong your ticket’s lifespan by paying just the interest. As such, you can choose to extend your loan indefinitely and decide how much you’re paying each month.

Bonus: You don’t have to make any payment during the first six months.

However, this way of doing business is arguably disadvantageous in the long run because it doesn’t impose any rigour. That means you’re left with a constant debt looming over your head and snowballing interest that makes repaying that loan even harder.

That’s why in the end, most people default on pawnshop loans altogether.

No Bureaucracy

Getting a pawnshop loan is the easiest thing you can do. Get your ID card, your gold/ jewellery, and you’re good to go.

By contrast, getting a personal loan from a bank puts you through some hassle. You have to:

  • Fill in your loan application
  • Gather the necessary documentation
  • Wait for the bank to do all the credit checks
  • And then have the face-to-face meeting.

Even if banks in Singapore have streamlined their application processes to get you the cash you need fast, pawnshop loans are quicker.

Besides, you may not even get that bank loan if the bank decides your risk of default is high.

But, if you want to minimise bureaucracy and still get a larger loan without pledging your valuables, consider a licensed moneylender. The advantage here is that you can get a considerable amount within 24 hours with minimum documentation and no need to abandon your treasured jewellery.

Unless you want an:

Easy Loan Default

One massive advantage with pawnshop loans is that you can abandon your family jewellery without any consequence other than some angry ghosts. So, if you can’t redeem or pay instalments towards your pledged item, the pawnshop will ultimately sell that asset. If they sell it for more cash than they initially gave you, you’ll get the difference.

However, if you default on your personal loan, you get nothing except a painful process:

  • The best-case scenario is that you can negotiate better repayment terms with your bank or licensed moneylender so that you can continue making repayments.
  • Otherwise, you’d have to consider debt consolidation and even declaring bankruptcy if your debt has gotten over $15,000.

But hey, at least those ghosts will be happy.

Tips to Make the Most out of Your Pawnshop Loan

After reviewing the pros and cons of pawnshop loans vs personal loans, let’s say you’ve decided on the first option. Here’s what you should do to get the most out of it:

1. Understand Your Gold’s Value – and also Who’s Buying It

Before pawning your gold jewellery, take some time to research and see how much it costs. That way, you’ll have a reasonably good idea of the sum you can expect from a pawnshop.

Of course, the more karats and purity your jewellery have, the more money you’ll get. Here’s a practical table you can use to calculate the amount you’re likely going to get after pledging that jewellery:

Carat1 Gram
8 CaratSGD 28.00
9 CaratSGD 32.00
10 CaratSGD 35.00
12 CaratSGD 42.00
14 CaratSGD 49.00
16 CaratSGD 56.00
20 CaratSGD 70.00
21 CaratSGD 74.00
23 CaratSGD 81.00

Source 

Take two other things into account, though:

Firstly, the pawnshop loan has its in-house experts valuing your assets. As such, in some cases, it’s likely to obtain less money than you think you’re entitled to. To avoid this, choose a pawnshop loan that allows you to contract a third-party evaluator for an extra charge.

This solution is best if you’re pledging precious items that cost a lot. Otherwise, if you’re exchanging a $500 piece of jewellery, you can rely on the pawnshop’s opinion.

Secondly, you should compare the pawnshop with a goldsmith. When you pledge an asset, expect the pawnshop to give you around 80% of its value. The remaining 20% fee is like a sort of premium that pawnshops take for the risk of lending you money.

So, if you’re pledging $4,000 jewellery or gold, expect to get $3,200 in return.

On the other hand, goldsmiths offer you much better deals closer to the actual market price of your jewellery. The problem is that you’ll be selling your assets to that goldsmith instead of pledging them.

But, if you’re pretty sure that you won’t be able to redeem your pawnshop loan from the get-go, reaching out to a goldsmith is the best alternative.

2. Check the License

Before heading into the first pawn shop you see, take a minute to check if that agency is licensed. You don’t want to work with an unlicensed pawnshop because these are illegal, so:

  • You’d be breaking the law, and:
  • You couldn’t expect fair, legal treatment.

Remember that pawnshops in Singapore have to respect the Pawnbrokers Act that regulates their activity. As such, these legal pawnshops cannot impose higher interest rates than the ones established by law and neither can they use illegal means of recovering the money you owe.

By comparison, loan sharks are particularly dangerous.

3. Consider Your Pawnshop Loan as a Secured Loan

The most giant trap of pawnshop loans is the lack of rigour we discussed above. Sure, flexibility can be charming at first, but it doesn’t hold you accountable.

Thus, postponing repayments puts you on a downwards spiral of snowballing interest and constantly increasing debt.

Here’s the solution:

Act as if you’ve taken a secure loan from a bank or a licensed moneylender. Impose your own tenure with fixed deadlines and stick to them!

This strategy will help you, in the long run, to redeem your pledge faster. Besides, you’ll also learn how to budget carefully, and that’s a practical skill for your everyday life.

For this, you have to:

4. Analyse Your Finances Thoroughly Before Getting That Pawnshop Loan

Remember that 1.5% monthly interest before getting a pawnshop loan. If you’re unable to make timely repayments, that interest gets to 18% per year – which is more than even your credit card.

Also, you have six months to redeem your item in the first place, but you can extend that period each time you pay another instalment. The problem is that increasing your tenure after two years or so isn’t worth it.

For a $2,000 loan, you’d end up repaying $2,720 after two years and $3,080 after three years.

So, before getting a pawnshop loan:

  • Make a detailed budget with all of your income sources and expenses.
  • Analyse these categories to figure out how much you can save each month. Let’s say you can cut back on your dining out so that you can save $200/ month.
  • Check how much money you’ll receive for your assets. Let’s say your assets are worth $2,000.
  • Divide this loan amount into the sum you can save each month to learn your tenure. In this example, the term is ten months.
  • Set a fixed date at which you’ll repay that $200 to your pawnshop lender.

5. Consider All Alternatives

After reviewing your budget, it’s best to consider other alternatives depending on factors like:

  • The reason why you need that pawnshop loan
  • The amount of money you want
  • Your tenure’s flexibility

For instance, let’s say you need $1,000 and that you’re able to repay this money without any issues in a month or two. In this case, you can take a pawnshop loan without any worries because you’ll only end up paying $15-$30 more at the end of your “tenure.”

However, if you need a larger loan, consider other options.

For example, if you’re already swimming in debt, you may believe that pledging your gold/ jewellery is good because it helps you cover at least part of that debt. But if you’re not getting a sufficient amount, this partial sum won’t be of much use in the long term.

If that’s your situation, a debt consolidation loan would be a much better idea. In this case, you’d amass all of your preexisting loans into a larger one with lower interest, lower instalments and longer tenure. So instead of struggling to reimburse $1,000/ month across many open facilities, you could get a more convenient instalment of $500/ month.

In Conclusion

Pawnshop loans are convenient in Singapore because they offer you flexibility and quick cash. However, this flexibility can turn against you.

To avoid losing your items and ultimately not solving your financial issues, consider all alternatives. In some cases, personal loans from trusted moneylenders like Credit 21 are equally fast and better structured. Besides, you get access to more money that solves all of your problems without worrying about your assets.

Apply here.