Both short-term loans and pawn loans are effective ways of getting urgent cash, and they both serve a similar purpose but have some fundamental differences. In this article, we will look into the main differences and determine which is the best overall loan for you.
Guaranteed payday loans are short-time loans that require no credit check. They are easy to apply for and get approved. You just need to have proof of stable income, a valid bank account, and a residency in the united states. This type of loan usually gets approved in under an hour and can be applied online. You do not require to stay in a long queue or submit mountains of paperwork to get the loan approved.
Short-Term Payday Loans vs Pawn loans: Which is better :RedPayday
These short-term loans are very convenient, and you can pay the principal amount with your next paycheck. This allows urgent financial needs to be addressed at the moment without the need of waiting around for the next paycheck.
The best use case for these loans is for people who need urgent cash but do not have a good credit score. They are also called unsecured loans because you do not need to pledge anything to the lender to get the loan approved.
Use cases of these loans involve urgent medical emergencies and paying off utilities or credit card bills, which will result in high interest and fines if kept unpaid. ( it will also significantly dent your credit score, making it difficult to get personal loans approved in the future
Being an unsecured loan, the lenders have to take a bulk of the risk causing these loans to have slightly higher interest rates than personal loans. But, the ease of getting the loan approved and the quick nature of the loan makes a payday loan one of the most popular loans among borrowers.
Background on Pawn Shop Loans
For most people, their knowledge about pawn shops comes from the hit American TV show “Pawn star”, based in Las Vegas, Nevada. Although the show does a great job in summarizing the basics, it does not touch upon the pawn loans side of things.
Similarly, pawn loans also share some of the same principles of lending urgent money to borrowers. They are more prominent in malls and physical stores and have been around for much longer than payday loans. To get a pawn loan, you have to pledge something of importance to the lenders, and if you fail to pay off the loan on time, the lender can keep the asset. Pawn loans also venture into other key services like- pawning goods and selling goods. What we mostly see in the TV series is people taking some of their antique prized possession to the shop and getting hefty cash in return. This usually involves selling the piece for a loss.
Why do people use these loans?
It is not unlikely, especially during the pandemic, for many working-class Americans to live paycheck to paycheck with virtually no savings. When something goes wrong and requires urgent cash, they find it difficult to manage the money. They cannot go to the bank to apply for a loan as it would take time, and oftentimes they do not want to go into the hassle of credit checks or pledge collaterals. For them, these urgent loans are very popular as they serve the need perfectly.
Although the interest rates of these loans are a tad expensive than other conventional loans, the ease of getting a loan approved made payday and pawn loans prevalent among general people.
Which is best for you?
Let’s address the elephant in the room, so which of these loans are best for you? Let’s look into some of the pros and cons of these loans.
Risk factor associated
One of the main differences between these loans is the risk factor associated with them. While both loans are relatively safe, there is a high chance of losing your item in pawn loans as failing to pay off the loan will result in your article being taken away. So there is a collateral risk in pawn loans.
Time and repayment options
Pawn loans have a limited time frame to repay the money, and they usually do not have a flexible loan extension that other loans offer. Pawn loans are also not governed by any central system to change their rules and regulation at will, unlike payday loans that have a governing body that supervise them.
The maximum amount of money you can get
When it comes to the maximum amount you can lend, pawn loans offer a much more significant amount in credit. Depending on what you pledge, you can make hundreds and thousands of dollars in cash. But there is a catch, the thing you pledge must be of great value; if you don’t have that, you are unlikely to be offered more than a few hundred dollars.
You can lend up to $1000 in credit for payday, which is usually fixed and does not change.
They offer similar interest rates, but in most cases, pawn loans have slightly more fees due to the high overhead cost, and they need to keep the business running. In contrast, payday has lower interest rates; for details on rates and fees, visit us at RedPayday.ca
If you are keeping counts, on most occasions, payday loans will be a far better option as they are easy to get approval for due to no credit check. They are safer in comparison to pawn loans as they do not require to pledge any assets. The whole process is online, and it takes just minutes to get approval for a loan. But if you need a substantial loan and have an expensive asset like gold and are willing to take the risk, a pawn loan can be something to consider. All in all, given the risk factor associated, I will recommend payday loans.