Have you ever thought about taking the loans from the banks, Pawn shops or licensed moneylenders or if you have then which option you prefer to choose upon? As with the matter of fact, all the three options are not good, they offer you money but you can end up losing more than you thought or expected. But yes, making a choice can be tough, let’s learn the difference between them.
Although there are non-authentic sources too who can lend you some money without any paper works like friends, family, and fools? But if none of them works we have others as well then you can surely go for some other resources. Below we have listed some of the vendors who can offer their services to you if none of your acquaintance will be able to help you out:
- Non-Bank Financial Institutions
- Pawn Shops
- Licensed Money Lenders
Let’s discuss them one by one:
- They are the best resources known to provide credit to the masses. They are further classified into two categories and i.e. Private Banks and Retail banks.
- Retail banks cater to the mass market like car loans, personal loans, car and business loan, etc. This section caters to almost all kinds of categories of consumers. If we talk about Private Banks their target HNI clients that can be provided the loans by keeping their collateral properties.
- The banks have some advantages attached to them, which you cannot receive from the other credit agencies. The advice can be like they do adhere to the government policies and provide you the genuine fee structure according to the market trends. Banks have the lower interest rates. Moreover, if you are catering to the home or education, land, then you get additional benefits as well. The banks are easy to payback as well. As you can proceed via paying online through ATM, by mail etc.
- With the advantages attached, the banks have some disadvantages as well. They are quite stringent to handle like you need to fulfill particular income requirement for applying for the loan. Everyone cannot qualify for the loan as well. If you, in any case, fail to repay on the said date your credit worthiness will surely get a hit. The other effect of the same will be that no other bank will able to provide with an option of loan for you.
- The pawn shops are said to allow or pledge you’re valuable or collateral for the loan that you take. When you bring your valuables to any pawn shops, they will loan them for a sum of money. This ranges from approx. 60- 80 % of the value of the valuable. So if you pledge a ring of 1, 00,000$ then you will receive a loan of approx. 80,000$.
- The valuable which you carry to the pawn shop is known as the pledge. And you need to leave the valuable at the pawn shop only and get back with the loan money. Starting with the time when you receive the money you have total 6 months to repay with the interest. Failing which the pawn shop will surely auction your pledge. The first-month interest in approx. 1% and going forward it can be 1.5% for the subsequent months as well. The repayments cannot be fixed as well as agreed upon by you at the time of giving you the money. They can differ as in the first month it can be 50$, in the second 700 $.
- Once you repay some amount the pawn shop will delay the auction by six months. It is not recommended to sell your gold, jeweler watches at pawn shops as you get the money a bit lower than you sell at goldsmith.
- Their some advantages attached with the Pawn shops as well. The basic advantage that you will have with the pawn shops as you do require only loan identification number for the loan. No credit or income history is checked, unlike other loans. If you fail to repay also you just lose the pledge and that’s all.
- If we talk about disadvantages then we will see that it is just a one-time loan. And the value is also dependent on the type of pledge that you have given. The interest rate is 1.5%, which is quite higher as compared to the other personal loans as well.
- Licensed money lenders usually deal in small loans like up to 10,000 $. Although for selective clients they can take a call. The loans can be secured by the collateral attached or unsecured ones too. Licensed money lenders deal the clients on an individual basis. While they also check your credit history and income.
- They may vary interest rates or the size of the loan based on their personal judgment. As such, it is difficult to make generalized statements about money lenders. Due to the significant risk involved in their business, money lenders charge high interest. The rate depends on your income, if you earn less than $30,000 a year, licensed money lenders can charge a maximum of 13% for secured loans, and 20% for unsecured loans. If you earn above $30,000 per annum, then the cap does not apply. It is not unheard of for interest rates to reach above 25%.
- There are some of the advantages attached with the money lenders as they are lenders of last resort. They may give you a loan even when the banks have turned you down.
And if we talk about the disadvantages then, here have been ugly incidents involving the hiring of debt collection agencies, and alleged harassment of debtors. A bank is big enough to absorb a bad debt and typically cares too much about its reputation to resort to such methods. Not so for money lenders. Some charge interest rates that are almost extortionate. In other words, you can say money lenders are the option for the people who the bank doesn’t cater to. But the pawn shop can be a lucrative option as they have the interest rate lower than the personal loan as well.