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Are Pawn Shop Loans a Good Idea?

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Pawn shop loans give you access to quick cash in exchange for jewelry, electronics or other valuable items in your possession. However, this can be a risky solution for your short-term financial needs due to high fees and the risk of losing your collateral.

Here’s what you need to know to make the best decisions for your finances.

How pawn shop loans work

Every state has its own set of laws and regulations regarding pawn shops, but the process of securing a pawn shop loan is usually the same. You will bring in your property and leave it behind as collateral in return for cash. There is no credit check, application or income verification required. Proof of purchase or some other indication that you own the item may be needed.

Pawn brokers won’t give you the full value of your item. In many cases, you will receive a percentage of the item’s value, but that depends on the pawn shop owner and if they believe the item could be sold for a decent price. So, if you need $500 to help you pay for car repairs, the item you bring in might need to be worth between $833 and $2,000 if the pawn shop pays you between 25% to 60% of the item’s value.

What are the best items to pawn?

 Electronics (current or in-demand)



  Musical instruments

  Camera equipment (especially digital)

Once you take out a pawn shop loan, you will have 30 days to a few months, depending on your state, to repay the loan. You’ll be given a ticket to present when you retrieve your property after repaying your loan.

Borrower beware: If you don’t repay your loan, the pawn shop will resell your item, which is reportedly the case with about 15% of borrowers who take out a pawn loan. However, if you fail to repay the loan, it won’t be reported to the credit bureaus and legal action won’t be taken against you.

4 reasons why you should avoid pawn shop loans

1. Pawn shop loans have high costs

Interest isn’t charged on pawn shops loans, but you’ll see a few fees tacked on. Although there is no interest, these fees can equal a loan with an annual percentage rate (APR) of 200%, making them an expensive loan option depending on the amount you borrow.

2. You could lose your property

If, for any reason, you fail to repay your loan, you will lose the item you used to secure the loan. If there is a chance that you’ll struggle to repay the loan, a pawn shop loan likely won’t be a good idea.

3. Many pawn shop loans are small dollar

The average amount of a pawn shop loan is $150, according to the National Pawnbrokers Association. Your pawn shop loan can be for a higher dollar amount if you bring in a more valuable item. Depending on the amount of cash needed, though a pawn shop loan might not offer enough funds to cover your needs. Instead, you might opt for a small personal loan.

4. You can get caught in a costly cycle

Let’s say you decide to pawn an iPad for a couple of weeks. You might have paid $900 for it, but maybe you can only get a loan for $300 and you pay a fee of $45. You come back in a few weeks and pay off the $345 debt, but if another loan is needed soon after, you’ll enter a cycle where you continue to pay fees for an item you already own.

When it may make sense to take out a pawn shop loan

When dealing with small financial emergencies that don’t require a high-dollar amount, a pawn shop loan could work — if you’re comfortable with the high fees and short repayment period.

For example, you need to cover an expense no more than $200 but don’t have the cash in your bank account. If you have a clear plan of repayment and even a backup option, then there is little risk that you will fall behind on payments and lose your item. In this case, a pawn shop loan is a safe option.

5 alternatives to a pawn shop loan

If you need fast access to cash, the following options can be more affordable:

Pawn shop loan alternatives
Pros Cons
Sell an item
  • No application or documentation required
  • Access to local, domestic and international buyers
  • Buyers may try to negotiate a lower price for the item
  • You will lose ownership of the item
Credit card
  • Credit building
  • May earn rewards on purchases
  • High interest rates
  • Potential Annual fee
Payday advance app
  • Fast funding
  • Access to cash on a rolling basis
  • Advance maximum applies
  • Short repayment term
Personal loan
  • Flexible borrowing amounts
  • Long repayment terms to choose from
  • Interest charged on loan
  • Origination fee may be charged
Community resources
  • Fast, timely assistance
  • Repayment not required depending on type of assistance
  • Limited availability of funds
  • Strict eligibility requirements

Sell an item

Rather than pawning an item, you might be better off selling it. Consider which items might be worth selling. It will take longer, but you could get a better price. Using local resources, like online Classifieds, Craigslist and Facebook groups could also help you move product quickly.

Credit card

A credit card can help you cover expenses until your next payday if it has a high enough limit. And if you pay off your balance in full by the due date, you can avoid interest charges, which tend to be high on credit cards. Fair to say, however, that the APR on a credit card will be comparatively much lower than the fees charged on a pawn shop loan.

Payday advance app

With payday advance apps, you can access your pay the same day you work. Earnin, for example, allows you to cash out up to $500 per pay period, with a daily cash out limit of $100 applying. Before you cash out, it verifies your direct deposit and pay schedule, and on your next payday, your account will be automatically debited for the amount you were advanced. Earnin does not charge users any fees, but depending on the app, users may be assessed a small fee.

Personal loan

Banks, credit unions and online lenders offer secured and unsecured personal loans in varying amounts. This option does come with additional fees and interest that must be paid in addition to the principal loan amount; however, a personal loan could be a better option because borrowers will have access to low interest rates and be given more time to repay the loan.

Community resources

Check to see if your community has emergency resources designed to help. A local nonprofit or religious group might be able to connect you with low-cost loans, or help paying bills. You might even see if family members can help.


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