Pawnshops are synonymous with fast cash or easy financing. It is a quick fix solution for the largely unbanked population in Cambodia still largely dependent on cash.
Although pawnshops may sometimes get a bad rap for cheating customers who are in need of cash or even selling stolen goods, its rising popularity in Cambodia since the first legal pawnshop, Cash U Up, opened in 2010, proves that the microfinancing industry is here to stay.
But wait, what is a Pawnshop?
A pawn shop is a place that provides you with microloans, in exchange for a collateral that banks don’t usually accept such as gold, fine jewellery, silver, or a motorcycle. The loan amount is based on the item’s market value and it is expected to be repaid at a certain time with interest. In the event that the loan is not repaid, the collateral will be considered as ‘sold’ to the pawnbroker to cover the loan.
Most Pawned Items
Pawnshops take anything of value like motorcycles, land titles, popular video games, laptops, televisions and jewelleries. However, tangible items like electronics or vehicles get a lower valuation such items tend to depreciate. Popular items that will often get you a higher valuation are things like gold, silver, precious gems, and other jewelleries. There’s a specific reason why a pawnbroker prefers to exchange jewellery and that is because there is often a sentimental value linked to it. Pawnbrokers believe that customers are more likely to make their payment on time in order to retrieve their items.
Stolen Items
Always make sure that the item you’re planning to pawn for at a pawn shop belongs to you. Many people are unaware that licensed pawnbrokers would often ask for documentation such as certification and receipts especially for branded goods. This acts as a protection to avoid taking in stolen items. Anything that is exchanged may sometimes be handed over to the police to check against reports of stolen items. Additionally, many licensed pawnshops are also maintaining transparency with the authorities by providing records of collateral transactions. All of the above is needed to make sure pawnshops don’t become an easy point of transaction for criminals.
Know Your Item's Worth
Often times, people say that they have been ‘ripped off’ by pawnbrokers. In reality, they unfortunately just haven’t done much research on the items they’re pawning themselves. Don’t put yourself in that position! Remember to always check what your item is worth in advance. This will give you the upper hand in negotiating for a higher value when needed. As an indicator, Cash U Up, a licensed pawnshop operator gives 70-85% of asset value for jewellery, and 60-65% of asset value for cars/motorcycles.
Tip: Keep in mind that you won’t get exactly the amount you want as pawnshops take a cut for their service too.
Interest Rates
If you’re unfamiliar with what interest rates are, they are a proportion of the amount lent, deposited or borrowed and are usually calculated in percentages. It is very crucial for you to keep in mind that you should always go to a legal or certified pawnshop like Cash U Up as they offer not only reasonable interest rates but they also guarantee that your collateral will be kept safely. According to Capital Cambodia, Cash U Up (a legal local pawn shop) charges interest from 1.8% – 3.5% with no extra service fee charges. Meanwhile, illegal pawnshops charge you up to 4% interest rates while some even make you pay additional charges like a service fee. Always go to someone you can trust and only go to a pawnshop if don’t have any other options. We would advise that, if you’re eligible for a loan from the bank, you should always take this alternative to start with.
Things to Avoid Buying at a Pawn Shop
We get it, shopping at a pawnshop can be exciting. You get to discover a range of items and perhaps even purchase a quality item for a lower price! Even so, try your best to avoid buying electronics like laptops, second-hand iPhones or cameras, even items such as motorcycles as they often have high depreciation. Besides, you can’t really tell if the quality of the device is in line with the price. You’re better off buying these items at second-hand electronic stores. However, if on the other hand, you’re considering buying precious pieces of jewellery, you can get them at a remarkable price and also a better return on value over time! The key is to shop smart! So, do your research and find out how much these different items are often pawned at, this will also give you an upper hand to negotiate for a better price before you purchase an item.
Pawnshops are an understated hero in a nation where banking penetration is only at 22%. It gives the people access to fast and small amounts of cash when the financial institutions cannot always accomodate for it. If you’re considering using a pawnshop service, be sure to check the license of the shop and avoid being victimised by illegal pawning.
We hope this article has given you insights into the pawnshop industry. Share this with a friend who might need it so they too, can avoid unnecessary charges from illegal pawnshops!
