Emergency cash may be needed for a variety of circumstances, from car repair to the power bill to groceries when payday is still far away. If you’re running short on funds, you may not have time to wait for a traditional loan. Or, you may be concerned about qualifying due to income verification or credit requirements. These are circumstances where you might consider a pawn shop loan.
While they might seem like a relic of the past, pawn shop loans are still available today and offer a way to get quick emergency cash in exchange for collateral: often valuable items you have around the house.
Learn more about these loans, how they work, and why they may not be the best option for you.
A pawn shop loan is a short-term, secured loan. You take an item of value to the pawnbroker, the shop evaluates it and gives you a loan for a percentage of the value. These loans are typically for 1-3 months, but you can pay back the loan at any time and get your item back. Each month, you’ll need to renew the loan until the end of your loan term.
You must repay the loan by the end of your loan term with interest, and the interest rate on these loans is relatively high (about a 200% APR). How do pawn shop loans work if you don’t repay the loan? If you don’t repay the loan, you forfeit the item, and the pawn shop can sell it to recover the money they loaned you.
Why choose pawn shop loans over a personal loan or a payday loan? Pawn shop loans are quick and easy to get, you receive cash in hand and they don’t check your credit. They may not verify your income, either. However, you will need to have valid identification and may need to prove the items you're providing belong to you.
If you don’t repay the loan, your credit scores and history aren’t affected. Pawn shops don’t report the lack of payment to anyone. They just sell the item to recover their losses.
How do pawn shop loans work? Here are the steps.
Pawn shop title loans use a vehicle that you own outright as collateral for a loan. It’s similar to other pawn shop loans, but instead of pawning an item you may be able to live without, like jewelry or tools, you’re using your car as security for the loan. Pawn shop title loans are often for a higher amount than other pawn shop loans. You can typically get up to 25% of the vehicle’s value.
These are also short-term loans. You typically have up to 30 days to pay off the loan, but it may be longer depending on the lender. If you don’t pay off the loan as agreed, the pawn shop can repossess your vehicle immediately.
The advantages of a pawn shop title loan are that you receive quick cash that doesn’t require a credit check. The downsides are that the interest rates are high, and you can lose your vehicle.
A few online pawn shop loans exist. Some specialize in high-end items like luxury watches, gold, expensive jewelry, and designer handbags.
Online pawn shops work much the same way as in-person pawn shops, with many being connected to a brick and mortar location. (And many only offer online shopping, rather than online pawn loans.) The main difference is that you're required to ship your items to be appraised, oftentimes sending a photo first to get an idea if the shop in question will take your item.
Many online pawn shops have this process:
The best approach to pawning an item, however, is to work with a reputable, local shop rather than an unknown online entity that may accept your items without sending you anything in return. It's also good to note that while you may be able to negotiate terms with an in-person pawn shop if times get tough, an online entity is much more likely to simply sell your item and sever ties with you.
Instead of an online pawn shop loan, consider an installment loan from Possible Finance. Our loans offer up to $500, which we directly deposit into your bank account within 1-2 days. We don’t check your credit score or use your credit to decide whether to offer you a loan. We offer a monthly repayment schedule, and you can reschedule payments for up to 29 days out with our phone app. (And we don't ask for your valuables as collateral, so the risk on your end is much lower than wondering if you'll ever see that family heirloom again.)
A pawn shop loan is relatively safe, in that these loans are regulated by state law in many states. Many shops have been operating for a long time, so you can find a shop with good reviews and that you feel comfortable with as a borrower.
Are they safe in a financial sense? Pawn shop loan interest rates are lower than most payday lenders but higher than personal loans. Personal loans often require good credit, however, which is why people turn to pawn shop loans in the first place. The pawn shop ticket explains the terms of the loan, but if you can’t repay the loan, you lose the item, whether it’s a game system or a car you depend on to get to work.
If you feel like a pawn shop loan is your best option, only pawn items you can live without. Don’t pawn items that are essential for work or school, like the only computer in the household or the truck you rely on for your daily commute. Consider avoiding pawning important sentimental items, as well. Memories are priceless, and there are alternatives to a pawn shop loan.
While a pawn shop loan offers quick cash, it’s not the only option. There are a range of financial products that can get you cash quickly:
You can quickly apply for a Possible Finance loan without leaving your house. All you need to do is download our app, and you can apply in just a few minutes.
We can get you the funds you need—without risking items that matter.