WILMINGTON, N.C. (WECT) – Most loans are simple, you borrow an amount of money and typically make monthly payments, those payments typically include an interest rate that varies depending on the type of loan as well as factors like your credit score.
But not all loans are the same, as a Wilmington woman is finding out the hard way after borrowing money from a pawn shop using her jewelry as collateral.
Now, after two years and paying around $1,000 more than she borrowed, but says she is no closer to getting her jewelry back than the day she walked in.
Two years ago Nancy Parisi was in need of cash and didn’t have anywhere else to turn, so, she decided to take loans out on her jewelry — but after more than a year of paying on her loans, she found out that her payments were not going towards the total loan due, instead, it was only being applied to interest and other fees.
While it might come a surprise, it’s not illegal and it’s the way these businesses work. Pawns shops are a business, and like any business they need to make money. They do this by loaning money and taking items in as collateral, these loans are typically only a percentage of the value of the item.
That’s because it’s a high-risk situation for the pawn shop, if someone does not repay the loan, the pawn shop then owns the property — and resells it at a higher value than what was loaned.
If the borrower does pay the loan back, there is a finance fee that shops charge on top of the amount borrowed.
These loans are not meant to replace a personal loan from the bank, they’re high risk for the shops and are meant to be short-term loans, typically just one month. Parisi had never been to a pawn shop before and says she wasn’t told that’s the way it worked,
“It was never explained to me it’s a 30 day loan, then I would have said, well, unless I get help there’s no way I’m going to be able to pay that nut. That’s I took out a $2,615 loan. And I’ve paid $3,600 in money and jewelry that I had to forfeit,” Parisi said.
The jewelry she pawned has not only monetary value, but sentimental value as well since many of the pieces came from her travels around the world and are irreplaceable. The interest rates on her pawn agreements show a staggering number for annual percentage, going up to around 250%, but since they’re short-term loans, the interest rates are not determined in terms of annual rates, instead, they’re monthly.
The State of North Carolina sets the interests rates and fees pawn shops are allowed to charge and limits it to less than a quarter of the total value loaned. While the state says pawn shops can not charge more than 2% 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 it’s a 30 day period. So they zero day one to day 30, you would have $122, if you didn’t make a payment, on day 31, you would owe another $22 payments, so you would owe $144,” J.R., an employee with Jim’s Pawn and Guns in Wilmington said.
In Parisi’s case, one of the items she pawned for $160 would cost $195 to get it back, that’s a roughly $35 finance charge.
However, when only making the minimum payment of $35.20, the annual rate of that loan jumps to 264%, meaning she’d pay around $422 annually in finance charges.
Paying just the minimum payment does not get you closer to getting your items back, it’s essentially a way for a borrower to renew their loan.
But, some shops will work with a customer who might not be able to afford the full loan in one payment in order to help get their valuables back.
“If a person owes if they borrowed $100, and their interest payment was $22, and they came in and say they had $30 to say and they wanted to pay their interest payment and have the rest of it go towards principal, we do that, that’s no problem,” JR said.
Ultimately, for anyone considering a pawn shop, it’s important to understand the terms of the loan and know that paying the minimum only ensures the shops don’t sell your items, and doesn’t go towards the total amount borrowed.
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