Shakespeare may have had a point when he wrote “neither a lender nor or a borrower be.” His observation, however, does not fit with many contemporary Americans who live off borrowed money. Borrowing cash may in fact be the most popular and prevalent strategy used for raising money.
Borrowing money and pawning objects for money are very similar, yet different. At its most basic level, a loan is nothing more than a promise to pay a certain amount of money, plus an agreed amount of interest at a date in the future.
In a loan arrangement, the loan may be secured or unsecured. Secured loans have some sort of collateral behind them that gives the lender confidence that the borrow can pay it back. Unsecured loans do not have any collateral and are only a promise to pay.
Pawning is a secured loan. When people pawn things the give an item of the value to the pawn broker who holds item as security for their loan. If they don’t pay, the pawn broker takes their item and sells it to recover the cost of the loan. Borrowing money is a stressful experience.
It means offering up something of value in return for a cash advance or loan. Something of value can be collateral, such as your car or house, or simply your good name in return for the loan of the money. This can be a very valuable strategy for dealing with cash crunches, but it can also be a roller coaster.
Consumer lending is a highly regulated activity. The federal government and individual states have long recognized the inequalities of position between borrower’s and lenders. Many different laws have been passed to regulate the process and to protect customers when they borrowed money. The one law that consumers should be most aware of us is the truth in lending act or consumer credit protection act.
The truth in lending law basically requires the lenders act really disclose all the terms all the loan. There are two great resources for understanding laws that protect consumers. One is the Federal Trade Commission web site at www.FTC.gov. The other is the Federal Reserve web site at www.FederalReserve.gov/pubs/consumerhdbk, which has a consumer guide to credit loss that is very helpful.
Borrowing money is not something limited to just banks and credit unions though. Many of the places that may be the consumer’s best source for borrowed money may be mortgage companies or consumer finance companies. In addition, consumers may borrow against life-insurance and 401(k) plans.
In “the new world order” Shakespeare’s warning is falling on deaf ears.
“Pss….can I pawn this quill pen”
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