WILMINGTON, NC (WECT) – Most loans are simple – you borrow a sum of money and usually make monthly payments, these payments usually include an interest rate that varies depending on the type of loan as well as factors such as than your credit score.
But not all loans are the same, as a Wilmington woman finds out the hard way after borrowing money from a pawnbroker using her jewelry as collateral.
Now, after two years and having paid about $1,000 more than she borrowed, she says she’s no closer to getting her jewelry back than the day she walked in.
Two years ago, Nancy Parisi needed money and had nowhere to go, so she decided to take out loans for her jewelry. But after more than a year of repaying her loans, she discovered that her payments were not applied to the total loan owed, but were only applied to interest and other charges.
Although it may come as a surprise, it’s not illegal and that’s how these companies operate. Pawnbrokers are a business, and like any business, they need to make money. They do this by lending money and taking items as collateral, these loans are usually only a percentage of the item’s value.
This is because it is a high risk situation for the pawnbroker. If someone defaults on the loan, then the pawnbroker owns the asset and resells it at a higher value than what was loaned.
If the borrower repays the loan, there are finance fees that stores charge in addition to the amount borrowed.
These loans are not intended to replace a personal loan from the bank. They are high risk for stores and are meant to be short-term loans, usually only one month. Parisi had never been to a pawnshop before and says she wasn’t told that was how it worked,
“I was never told it was a 30-day loan, so I would have said, well, unless I get some help, I can’t pay this. that’s why I took out a loan of $2,615. And I paid $3,600 in cash and jewelry that I had to lose,” Parisi said.
The jewelry she has pawned not only has monetary value, but also sentimental value since many of the pieces come from her travels around the world and are irreplaceable. The interest rates on his pledge contracts show a staggering number for the annual percentage, ranging up to around 250%, but as these are short-term loans, the interest rates are not determined in terms annual rates, but rather monthly. .
The state of North Carolina sets the interest rates and fees that pawnbrokers are allowed to charge and limits them to less than one quarter of the total loaned value. While the state says pawnbrokers can’t charge more than 22% interest on a loan, they are allowed to charge other fees like storage fees and transaction fees.
“It’s 22%, so if you were to borrow $100, you would pay back $122. And that interest starts on day one, and that’s a 30-day period. So from day 1 to day 30 you would have $122, if you didn’t make a payment, on day 31 you would still owe $22, so you would owe $144,” Jim’s Pawn and Guns employee JR in Wilmington said.
In Parisi’s case, one of the items she pawned for $160 would cost $195 to retrieve, or about a $35 finance charge.
However, when she only makes the minimum payment of $35.20, the annual rate of this loan increases to 264%, which means that she would pay approximately $422 per year in finance charges.
Paying only the minimum payment doesn’t get you any closer to getting your items back, it’s essentially a way for a borrower to renew their loan.
However, some stores will work with a customer who may not be able to repay the entire loan in one installment to help them get their valuables back.
“If a person owes, if they borrowed $100 and their interest payment was $22, and they came and said they had $30 to say and they wanted to pay their interest payment. interests and the rest goes to the principal, we do. , that’s not a problem,” said JR.
Ultimately, for anyone considering a pawnshop, it’s important to understand the terms of the loan and know that paying the minimum only ensures that the shops won’t sell your items and affect the total amount borrowed.
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