Pawn Shop Loans: Are They a Good Idea?

When you're in a financial pinch, a pawn shop loan could be an easy solution. This type of secured loan is typically accessible to anyone who can offer something valuable as collateral. 

But there are risks involved with taking out a pawn shop loan, and they aren’t the best loan option for everyone.

How do pawn shop loans work? 

While the process may vary slightly between pawn shops, the general concept is the same: you exchange collateral for a personal loan. 

Collateral 

kə-ˈla-t(ə-)rəl 

noun 

An asset or valuable item pledged by a borrower as security for a loan. 

Common types of pawn shop collateral include: 

• Jewelry 
• Electronics 
• Musical instruments 
• Collectibles 
• Power tools 
• Firearms 
• Designer accessories 
• Precious metals 

The pawn shop owner will assess the value of your item and offer you a loan, typically ranging from 25% to 60% of the item’s value. For example, if your diamond ring is worth $1,000, you could receive a loan between $250 and $600. 

You’ll usually have 30 to 60 days to repay the loan, including interest and fees. If you’re unable to repay it in time, you might have the option to extend or renew the loan. If not, the pawn shop will keep and sell your collateral to recover their losses. However, if you repay the loan in full, your item will be returned to you. 

While pawn shops offer quick access to money, they come with significant risks. High interest rates and fees can make these loans difficult to repay on time, and you may lose something you truly value. That’s why it’s crucial to compare options from different pawn shops and choose one that best fits your needs. 

Pros and cons of pawn shop loans 

Pros 

• Instant payout. Once the pawn shop assesses the value of your collateral, you receive the loan on the spot. We’re talking same-day cash (or check). 
• Easy to get. If you have something valuable enough to use as collateral, you can secure a pawn shop loan. 
• Readily available. Pawn shop loans are offered at most local pawn shops, used jewelry stores, and secondhand specialty shops. 
• No credit check. Since these loans are secured by collateral, no credit check is needed. You can qualify even with bad or no credit. 
• No bank account needed. Unlike many other loans, pawn shop loans don’t require a checking account. 

Cons 

• High interest rates. One major drawback is the interest rates. With an average APR of 36%, pawn shop loans often carry more interest than credit cards. 
• Additional fees. Many pawn shops charge a flat fee, like $10 to $20 for every $100 borrowed, on top of interest. 
• Risk of losing an asset. If you can’t repay the loan, you’ll lose your collateral. This could be a significant loss, especially if you used a sentimental item. 
• Low loan-to-value ratio. You’ll only receive 25% to 60% of your collateral’s worth, meaning the loan won’t reflect the full value of the item you’ve put up. 
• High risk of loan extensions. Due to high interest rates and fees, many people struggle to repay pawn shop loans on time. About 15% of borrowers end up extending or renewing their loans, resulting in more fees. 

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Alternatives to pawn shop loans 

Cash Advances 

A Cash Advance, also known as a Payday Loan, could be a good alternative. Like pawn shop loans, they’re offered in small-dollar amounts — usually no more than a few hundred dollars. 

However, the key difference is that Cash Advances are unsecured, meaning you don’t need collateral to qualify. In most cases, you simply need proof of your ability to repay with your next paycheck. 

Installment Loans 

If you need more money than a Cash Advance or pawn shop can offer, an Installment Loan might be the better option. You can borrow up to several thousand dollars, and some lenders — including Advance America — offer same-day funding. 

Installment Loans often don’t require a credit check, and you can apply online or in-store. Repayment is made over time through scheduled monthly installments, making it more manageable compared to lump-sum repayment. 

Lines of Credit 

A Line of Credit is another flexible loan option you can secure from direct lenders like Advance America, either online or in-person. Unlike one-time loans, a Line of Credit provides ongoing access to a pre-approved amount of funds, letting you borrow as needed. This makes it ideal for situations where expenses come up over time, such as medical treatments or home renovations. 

Credit cards 

Credit cards could be a solid alternative to pawn shop loans, especially if you qualify for one with lower interest rates. Keep in mind, however, that if you don’t pay off the full balance each month, you’ll incur interest charges. 

Cash advance app 

In addition to getting a Cash Advance loan from a direct lender, you could also use a cash advance app. These apps are convenient, easy to use, and can provide immediate payouts once approved. 

However, many of these apps are relatively new and lack the track record of reputable lenders like Advance America, which has been a trusted name since 1997. Be sure to do your research to avoid scams or platforms with hidden subscription fees. 

Title loan 

If you’re interested in a secured pawn shop loan but own your car outright, a title loan could be a better option. With a title loan, you use your vehicle as collateral to receive a secured loan. 

The key advantage of title loans is that they typically offer larger loan amounts since cars are often worth more than items like jewelry or collectibles. However, there is a major downside: if you’re unable to repay the loan, the lender takes possession of your vehicle to cover their losses. 

Payroll advance 

Depending on your employer, you may be eligible for a payroll advance. This is when your employer provides all or part of your upcoming paycheck before your usual payday. 

Selling unused or unwanted items 

Instead of applying for loans or credit, you could raise the funds you need by selling stuff. 

Hosting a garage or yard sale is a classic option, but you could also reach a wider audience by selling through online platforms. Websites like Facebook Marketplace, Craigslist, and eBay allow you to advertise your items, with some offering same-day payouts on sales. 

Help from a family member or friend 

When other options aren’t available, you could turn to friends or family for financial assistance. The benefit of borrowing from loved ones is that they usually won’t charge interest and are often more flexible with repayment terms. 

But it’s crucial to prioritize repaying them. Failing to do so can strain your relationship and leave a lasting negative impact on your bond. 

Start a side gig 

If you don’t need immediate funds, starting a side gig is a great way to earn extra money. There are plenty of side hustles you can do in your free time or online. Options include freelancing, food delivery, babysitting, pet care, and tutoring. 

➢RELATED: What Is the Gig Economy?

Pawn shop loans FAQs 

How much will a pawn shop loan pay? 

The maximum amount you can borrow depends on the pawn shop and the value of your collateral. Smaller pawn shops typically offer loans ranging from a few hundred to several thousand dollars, while larger shops can offer loans of $50,000 or more. 

Do pawn shop loans affect your credit? 

No, these loans don’t affect your credit score. Pawn shops don’t perform credit checks when you apply, and they don’t report your payment activity to credit bureaus. 

How is a pawn shop loan different from a Payday Loan? 

The key difference is that pawn shop loans are secured by collateral, while Payday Loans are unsecured. Payday Loans can also be obtained through apps and direct lenders, whereas pawn shop loans are only available at pawn shops or secondhand stores. 

Bottom line: Should you get a pawn shop loan? 

A pawn shop loan could be a convenient option when you need money fast. They offer same-day funding, usually in cash, and you can use the money right away. 

Keep in mind, however, you risk losing your collateral if you can’t pay back the loan. Research collateral loans carefully before deciding whether a pawn shop loan is right for you.