Pawn Shop Loans – Pros, Cons, and an Overview

Do you have expenses and need instant cash to cover them? Pawnshop loans are a fast, convenient, and guaranteed way to get your hands on some quick cash. There are no applications to complete and no stressful approval processes to go through. You can walk in the pawnshop with your item(s) of choice and walk out with a loan in hand.

Unfortunately, some pawnbrokers prey on uninformed customers. Before you head out, make sure to learn the ins and outs of pawnshop loans. We created this comprehensive guide, so you can find out how these loans work alongside their pros and cons. We also included some reliable alternatives to consider if a pawn loan doesn’t sound like a good idea.

What Is a Pawn Shop Loan?

As previously stated, pawn shop loans are secure, short-term loans that you can take out using personal items as collateral. You bring in an item in the pawn store, like a laptop or jewelry, and leave it with the pawnbroker. The pawnbroker gives you a loan based on the item’s value, and you have a certain period to pay it back. If you fail to repay in time, the lender can keep the pawn. In most cases, they resell the item to use it as payment for the loan.

These short-term loans don’t require you to have any special qualifications. There are no credit checks or income proofs involved. You can be unemployed and have no credit and still get a loan. That’s what makes them incredibly convenient – all you need is a valuable item you’re willing to part ways with.

How Do Pawnshop Loans Work?

Unlike a personal loan, pawnshop advances don’t have an application process nor a credit check for you to go through. All you need to do is bring in an article, and you’ll get a loan amount based on its worth.

Start by locating a reliable and trustworthy pawnshop. A quick google search of “pawn shop loans near me” will quickly guide you towards the best stores in your area.

Before you go in, remember that your object must have high resale value and is easy to resell to the general public. While you might’ve paid a lot for your book collection, that doesn’t mean the pawnbroker can resell it for a lot. Note that the resale value is often lower than its original price. Some popular pawn choices can include musical instruments, electronics, power tools, firearms, jewelry, old coins.

Once you hand over the pawn, the broker will analyze it by asking you several questions about it. They do this to assess the item’s value and to make sure it’s your property. The pawnbroker will proceed to ask you if you want to pawn it or part ways with it entirely and sell it.

If you settle for the first option, the shop will offer you a loan whose amount depends on the item’s value. Typically, you can get around 25% to 60% of its resale value. An important fact to remember is that pawn loans don’t come with an annual percentage rate. Instead, they’ll charge a finance fee.

When You’ll Get the Money?

Once you accept the loan, you’ll get the cash immediately, along with a pawn ticket. The pawn ticket is a receipt for the article you pawned. You’ll need it to reclaim your pawn later – don’t lose it. The shop will also provide you a date for when you can return to repay the loan. If you don’t come back by then, the pawnbroker will either keep your valuables or put a ‘For Sale’ on them.

Either way, there are no penalty fees if you don’t repay the loan within the deadline.

Advantages of Pawn Shop Loans

Pawn shop loans come with several advantages. According to the National Pawnbrokers Association, 7.4% of U.S. households have turned to a pawn store in a time of need.

For instance, many Americans with a bad credit score have a problem getting approved for a traditional bank loan. Alternatively, some people might not have a bank account or don’t have anyone to turn to as a cosigner. So, taking out a pawnshop loan can be a suitable and practical option.

All you need to do is hand over your collateral, fill out some paperwork and get the receipt with the loan terms on it. Meaning, you can walk in with your personal article as collateral and leave with the money within minutes. Hence, it’s a good choice for small and urgent expenses.

Another great advantage with these loans is that your credit remains untouched. Unlike personal loans, pawn shop advances don’t perform credit checks on you. So, it won’t affect your credit score at all. Additionally, they typically charge less than the penalty for a late credit card payment. Since there is no contract, you won’t face legal repercussions if you don’t repay the loan. However, you’ll end up losing your personal item.

Moreover, pawnshop loans come with relatively low interest rates in comparison to other advances. While they usually go up to 240%, other advances, like payday loans, have an APR of over 400%. Meaning, it’s a much cheaper alternative than a title loan, especially if you have bad credit.

Disadvantages of Pawn Shop Loans

Even though pawnshops can be a quick source of money, they do come with some considerable drawbacks. These cash advances can turn into a severe financial risk, especially if you aren’t well-informed.

First of all, there is no specific contract between the borrower and the pawnbroker. This can be a dangerous situation to put yourself in. There are many instances where pawnshops will change the agreement’s fine print with no prior notice. This can include shortening the repayment term or raising the interest rates.

Loans from pawn shops come with high APRs and additional fees. If you pay an average of 10% per month, you’ll be paying an annual interest rate of 120%. Depending on state law, pawnshop rates can range from 12% to over 240%. Additionally, you might need to cover insurance fees, as well as storage charges. For example, Florida pawn services regulations state that the interest can’t exceed 25% of the amount financed for every 30-day period.

Moreover, you could easily lose your property. Getting a pawnshop loan means that the item you pawn becomes the property of the pawnbroker. Typically, you get 30 or 60 days to pay off your loan and get your property back. If you don’t repay the debt within the term, the broker can sell it. Statistics from the National Pawnbrokers Association show that only 85% of customers redeem their loans. Note that some states allow you to keep the excess cash the broker makes from the sale.

Also, some federal regulations set the game rules. Those are:

• Patriot act
• Truth in Lending Act
• Equal Credit Opportunity Act
• Data Privacy and Safeguard
• Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF)

Lastly, pawnshop loans don’t give a significant amount. We already mentioned that the loan amount is related to the value of your item. You must remember, however, that you’ll be getting a fraction of your item’s worth. On average, borrowers get around $150 from pawning their item. Sadly, $150 won’t be a great solution to most emergency expenses you might be dealing with.

Alternatives to Pawn Shops

There’s no need to worry if you don’t feel like a pawn shop loan is right for you to get money. There are several alternatives you can try out for quick financial help.

• Selling instead of pawning – before you pawn your item, take some time to think if you’re ready to fully part ways with it. If the answer is yes, you should consider auctioning it off on eBay, a local antique shop, or Facebook Marketplace. Private buyers typically pay more than the pawnbroker, but it could take a bit of time.
• Help from your close friends – if you need money, consider asking one of your family members or a friend to loan you some extra cash. This way, you can work out a fair repayment deal, and you’ll avoid high interest charges.
• Due-date extensions – if you’re not able to pay off your emergency bills on time, you might have some luck with getting a grace period. Call up your creditor, explain your current financial situation and see if they’re willing to add more time to your repayment term.
• Small-dollar loans – these are quick cash advances that you can get from online lenders like us. These loans typically require you to go through a credit check. So, they may not be the most suitable option to borrow money if you have a bad credit history.
• Personal loans – we also offer quick cash loans to applicants with a bad credit score. However, beware that these financial products often have short repayment terms, and you’ll have to cover high APRs.
• Payday loans – our payday loans are a great source of cash between $100 and $1,000 until your payday. You can get these from the comfort of your home and as soon as the same day. The APR is traditionally high, and that’s something you shouldn’t overlook.
• Side gigs – getting an extra job to go with your regular one is a great way to make some extra money. Whether you choose to rent a room, a part-time job as a waiter, or do some freelancing online – you’re sure to bring in some extra cash. This way, you won’t have to deal with repayment terms and high interest rates.

Bottom Line

A pawn loan can be a suitable choice if you need an instant cash loan and don’t want to undergo a credit approval process. Since there are no credit checks or an application to fill, you could get your loan within minutes. Moreover, pawn shop loans have lower interest fees than other small loans.

Still, that doesn’t mean the interest fees aren’t extremely high. Since there are no contracts to sign, the pawnbroker can easily change the repayment terms. Not to mention that if you don’t repay, you can lose your property in the blink of an eye.

A pawnshop loan should be your last resort. Sadly, the drawbacks outweigh the advantages of this cash loan. Yet, if you decide on taking out pawnshop loans, make sure to do your due diligence first.