Do you know that the legendary jazz musician, Louis Armstrong bought his first horn in a pawn shop? It was sold to him for 35 cents only. You can watch the video below to hear a story told by Louis’ fan.
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Due to the fact that musicians don’t have a regular income, pawn shop provides a very useful service to help them get over short term financial stress. Although I doubt that you will find musical instrument deals in the pawn shops in Malaysia, pawn shops exist here for the same reasons it exist 3000 years ago in China.

As time goes by, pawnbroking is now strictly regulated by the authorities in some countries. Here, it is governed by the Pawnbrokers Act 1972 (amended 1st January 2004)

Pawner Vs. Pawnbrokers

Pawner is a person who gives a valuable item to the pawnbroker in exchange of monetary loan.

A pawnbroker (or pawnshop) is an individual or business that offers monetary loans in exchange for an item of value that is given by the pawner.

The valuable items having been pawned to the broker are known as pledges, or pawns, or in financial term – collateral.

Pawnbroker shall give the Pawner a pawn ticket and the loaned money. If the Pawner pays back the loan amount plus the agreed interest within the agreed period of time, the pledges shall be redeemed in original conditions.

How Pawnshop works?

How a pawnshop works

There are two types of income a pawnbroker can make.
1. The interest charged on the loan amount
2. The profit made when a pawned item is sold

In fact, the pawnshops in Malaysia made money from both methods.

Common items pawned

  • Jewellery,
  • Electronics,
  • DVD movies,
  • music CDs,
  • Musical instruments
  • Tools (both hand tools and power tools).

Why Pawn?

People turn to a pawn shop when

  • They have difficulty gaining access to mainstream financial services due to poor credit rating
  • They are desperate for an immediate financial aid to bridge the gap until their next pay day.
  • They have used up their emergency funds and savings due to loss of jobs.
  • They don’t have proper income documents and credit history that enable them to get financing from banks. These are normally the low income group.

How long is the term of loan?

In Malaysia, 6 months.

How much is the interest charged?

In Malaysia, 2% per month (24% per annum). It is higher than credit card charges, but still lower than the loan sharks (normally more than 3% interest per month)

What happens if I can’t afford to redeem the pawn?

When you can’t pay back the loan plus the interest charges at the end of six months term, you can then renew then pawn for not less than 3 months. Of course you will need to pay more interest to redeem it later.

When the renewed term is over, the pawnbroker automatically owns the item which is less than RM200. If the value of the pledge is more than RM200, the pawnbroker will sell the pawn by auction. Any surplus from the auction bid shall be given back to the pawners.

Pros and Cons of Pawn

Pros

  • Fast and easy loan
  • Better rate compared to loan sharks
  • There will be no bad credit history left on the book, as the pawnbroker can recoup their money because they have your valuable items pledged. They can sell the item to recoup the money.

Cons
You may lose the pawn tickets –
In this country, you will be given a pawn ticket whenever an item is pawned to the pawnshops. If you lose the tickets, other people can claim your item. If this ever happens, you should inform the pawnbroker immediately. You will be required to produce a police report in order to get a new ticket issued. If you fail to do so, other people who can produce the lost ticket will be able to redeem your items.

You may lose your belonging forever –
Pawnbrokers can keep the pledge when the expiry date of redemption is over if the sum involved is less than RM200. Even if the item is more than RM200 but you failed to redeem it, it will be sold in an auction. Some people lose sentimental items (think of grandfather’s clock, grand-grandma’s diamond ring) to pawnshops.

High interest rates –
2% per month

Pledges not described in details –
The pawnbroker should describe the pledges in details in the pawn ticket. But normally they only describe your Victorian era, antique oxide finish, 7mm in width 4kt gold wedding ring simply as “golden ring”. You should take a picture of your item and ask the pawnbrokers to chop, sign and date it. This is to ensure that you’ll get back your exact item during redemption.

Undervalue –
You know that your item is worth RM1000, but the pawnbroker will under-evaluate it and provide maybe meagerly RM300 loan. It is pretty normal that your item being evaluated 50% below the actual value.

Where to find pawn shops?

Conventional pawn shop – you will easily find pawn shop in almost every town and city. You can find the pawnbrokers listed in yellow pages and local directories too.

Alternatively, Bank Rakyat and Bank Islam in Malaysia provide similar service for pawning your jewelery. These Islamic financial institutions don’t make profit from interest, but from the safe-keeping fees. You may get a better rate in banks compared to conventional pawn shop.

Conclusion

Frankly, I’ve never engage the service of a pawnshop. If you do, please share your experience with us in the comment section below.

Reference:

The Money Book by Consumers Association Penang (CAP)
Wikipedia


KCLau
KCLau

Personal finance author and trainer

    15 replies to "Easy Pawn Shops – Do you need to Pawn?"

    • TStrump

      I’ve never had to pawn anything but they sure are fun places to walk through.
      I find these places are more prevalent in the US than in Canada.
      I wonder if Craigslist is having an effect on these?

      • KCLau

        @ TStrump,

        The pawnshop in Malaysia is boring. You can hardly find a valuable used item like hi-fi or musical instruments.

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    • Ryan Lau

      Kc Lau,

      you forget to mention those guys who stand outside the pawn shop …. well, i dont know to call them … runners ??

      they usually stand outside the pawnshop, they are like wolves who sense an open wound … when someone (usually pawners) approach the pawnshop, they will usually counter the offer of the pawn shop … they are neither money lenders, nor they charged a fee … but when they give you the cash, you can be sure your item is gone …….

      i tried going into a pawn shop once (like browsing and looking for investment items, coins and old banknotes) and its not really a friendly place, people stare at you …. once my family member saw me going inside, and they report it to my parents (who suspected me of selling family heirlooms) …. in asia, the social stigma on pawnshops are usually negative ………

      in the US and UK is much better ~ pawnshops are like bargain shops ~ 🙂

    • mchadi

      Currently all Malaysian above 18 years old disregard of religion can opts for Ar Rahnu ( islamic pawn system ), this very system grows significantly fast over the past few years, they charge you per month RM0.75 per RM100 gold value ( 9% per annum ) and they give you loan appr. 70% of the gold value , certain operator charge you 12% per annum. The system is good, not really pressure the pawner with ridiculous rate. However, recently this system has been used by many gold investors for speculative gold investment, and many of them turn penniless when gold price slumped. They pawn gold and buy another gold and pawn again and again (with hope gold price will goes up and up always ), its not just speculative…but gambling indeed..my 2 cents

    • Nitta

      I have Samsung galaxy Note 4 I want to pawn how much I can get?

    • Dinesh

      I have a 18kgp necklace to pawn how much can i get

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