Pawn shop or money lender in Singapore – which is the better option for you?

If you need money in a hurry, two of the most convenient options are to visit a pawn shop or apply for a loan from a money lender in Singapore. Each choice has its pros and cons so picking between them is not always easy.

In this post, we explain those advantages and disadvantages in detail. It is designed to help you decide which choice to make in light of your current financial situation.

How pawn shops work

Pawning is similar to getting a secured loan in Singapore. In a secured loan from a money lender, you put up an asset such as a vehicle as collateral but do not usually have to hand it over to them in exchange for the cash.

With pawning, you give the pawn shop something you own (called the pledge) and they give you cash as a percentage of the item’s agreed value. The pawn shop owns the pledge from the time you pawn it but cannot sell it off to anyone else for a certain period.

At any time during that period, you can buy the item back from the shop for the agreed value, plus fees and charges.

The advantages

The main advantage of dealing with a pawn shop is that there is no obligation for you to repay and reclaim your pledge. If you do not manage to gather the funds to buy your pledge back, the pawn shop owns it outright and the matter is settled. There is no impact on your credit score.

Because of this dissociation from the credit score system, anyone can use a pawn shop’s services, regardless of their financial history. Since there are no credit checks, the process of receiving cash is faster, too.

The disadvantages

The chief disadvantage of pawning an item is that you will receive only a percentage of its actual value. Depending on the item and its condition, pawn shops may offer you between 50% and 75% of what your pledge is worth.

Then, there are the high fees. Pawn shops ordinarily give you between 1 and 2 months to reclaim the pledge. Fees can easily add up to 10% or 20% of the amount you received, which is astronomical compared to unsecured loans.

How money lenders work

Money lenders in Singapore offer both secured and unsecured loans. With the former, you put up an asset as collateral and for the latter, loan approval depends on a credit check. These loans come with a fixed rate of interest, with a set amount to be repaid in instalments every month. There are fees and penalties for late and missed payments.

The advantages

Unsecured loans are popular because the borrower does not have to risk anything they own. The repayment period is usually over a period of months or years, which eases the burden. The interest rate for a moneylender loan in Singapore is limited to 4% a month, which is much comparatively affordable.

Every successful loan application and repayment also improves your credit score. This may qualify you for bigger loans and lower interest on subsequent loans.

The disadvantages

Lenders perform a credit check when you apply for a loan, and failure to meet your repayment obligations can have long-lasting effects on your credit score. The formal approval process usually takes longer than a typical pawn shop transaction but it is still simple to get a loan from a money lender in Singapore.

Making your choice

You may prefer a pawn shop or money lender depending on your financial circumstances, and this may change as your situation does. Here is a quick summary to help you make the decision.

A pawn shop may be the better option if you:

  • have a bad credit score that disqualifies you from receiving unsecured loans
  • want to sell off items that you no longer want or need
  • are short of funds now but will soon have the money to reclaim your pledge

Borrowers may prefer a loan from a money lender in Singapore if they:

  • want to build their credit for the long term
  • want to pay back the loan over an extended period
  • can only afford a maximum of 4% interest on the loan per month
  • do not want to risk any of their possessions

Always make such decisions with care and, if possible, only after deliberating with your loved ones.