Getting a loan can be hard. Even with the current measures issued by the Government to help small businesses and individuals tide over the economic fallout from COVID-19 like the Temporary Bridging Loan Programme, there are still many individuals struggling to raise enough cash until the end of the crisis.
Other than banks and licensed moneylenders, the latter of which may charge you an arm and a leg to get a loan, you may also consider pawnshops such as Moneymax, ValueMax or Maxi-Cash in order to get a short-term loan to tide over difficult times. Here are 5 things you need to know before offering up your jewellery and gold as collateral for cash upfront
#1 Treat It As A Collateralised Loan
Pawning your jewellery and gold means putting your items up for cash for immediate cash in the form of a loan. Pawnshops charge competitive interest rates (1.5% per month) – because your jewellery is the collateral, but treat it as a last resort, because they can be costly and tend to be more for those who have bad credit ratings to get low-cost loans from banks. However, interest rates are still very high so use with caution.
|Personal Loan (Bank)||Credit Card||Pawnshops|
|Interest Rate||0.3% to 2% (per month)
3.6% to 24% (per annum)
|1.25% to 2.3% (per month)
15% to 27.6% (per annum)
|1% to 2% (per month)
12% to 24% (per annum)
|Tenure (mths)||12-60||1 month (late charges may apply thereafter)||6 months (extendable upon partial repayment)|
|Eligibility||More attractive rates for higher-income earners||Most cardholders have to earn at least $30,000 per year||Need to possess items of value to be pawned|
#2 Know The Value Of Your Gold And The People Who Want Your Gold
Understanding how much your gold is worth can give you a much clearer estimate on how much you can get for your piece of jewellery or gold. The higher the gold purity for your jewellery, the greater the loan amount you can receive for pawning it. Here are the most standard karats and their respective levels of purity:
|Number of Karats||Parts of Gold||% Gold Purity||Millesimal Fineness|
|10K||10/24||41.7||416 / 417|
|14K||14/24||58.3||583 / 585|
|22K||22/24||91.7||916 / 917|
Comparing Pawnshops Against Goldsmiths
Pawnshops take 10 to 20% off the purchase price when issuing loans. Think of it as the premium for the “counterparty risk” they are taking on when they issue loans to you in exchange for your jewellery or gold. Thus, if your jewellery or gold is worth $3,000 for example, you will likely be able to take a loan of $2,400 to $2,700.
A goldsmith will give you more attractive rates for trade-ins, but you are effectively selling your jewellery and gold rather than using them as collateral for a loan. In this case, the goldsmith acts as an exchange for you to buy and sell gold rather than a liquidity provider.
#3 Flexible Repayment Schedule, Typically Giving You 6 Months To Redeem Your Item
Pawnbrokers usually offer a monthly interest rate of 1.5%, which means an annual interest rate of 18%, which is nearly as high as credit cards. They also usually give you up to 6 months to redeem your item, failing which they will put your item up for auction. You may redeem your item at any time by paying the interest.
If you are unable to pay up the full interest within 6 months, you can also extend the loan tenure by making a partial payment. Do bear in mind that the 1% to 2% monthly interest rate makes it very costly to maintain the loan beyond a year. For longer-term loans beyond a year, it would be better to get a personal bank loan instead.
As an illustration, UOB has a personal loan that allows you to borrow amounts starting from $1,000 with a 3.68% interest per annum, although the effective interest rates are higher. Compared to the pawnbroker’s 18% interest per annum, a personal loan from a bank is still a much better option for longer term borrowers.
#4 You Are Not Held Personally Liable If You Default
Unlike personal bank loans which you are personally liable for should you default (i.e., the bank can sue you to recover your personal loan debts), you are not held personally liable should you be unable to pay your loans. The pawnshop will simply sell off your jewellery and gold and will pay you the surplus of the proceeds (if any). If you default on a personal loan from a bank, the bank can repossess your assets to recover owed monies and, in certain cases, may force you to initiate bankruptcy proceedings. Pawnshops will not be able to sue you for your personal assets. Instead, they will put your items on auction as a way to recover owed monies.
#5: When In Doubt, Check For License
Pawnshops in Singapore are also regulated under the Pawnbrokers Act. This means that they are required to keep a license to remain legally operational. Thus, always check for their license before pawning your jewellery or gold, to avoid falling prey to scammers and unregulated moneylenders.
As a final word of caution, it may be tempting to take out loans against your valuables for a rainy day, but the interest rate you have to pay back to pawnshops may not be worth the amount of money loaned out in the end. For shorter term loans, pawnshops are a good option to consider if you have the capacity to repay the loan within a short span of time.