Pawn Shop Loans: Are They Safe?

Melinda Sineriz
Nov 10, 2021

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.

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What is a Pawn Shop Loan?

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?

How do pawn shop loans work? Here are the steps. 

  1. Find a local, reputable pawn shop. 
  2. Take an item of value to the pawn shop. They typically accept:
    • Jewelry
    • Musical instruments
    • Video game systems
    • Other electronics
    • Valuable coins
    • Firearms
    • Tools
    • Other collectibles 
  3. Present the item to the pawn shop and provide proof of identity. The staff will assess the value of the item, decide whether to offer a loan and the loan amount.
  4. Decide whether to accept the loan. 
  5. If you accept, you’ll be given cash and a pawn ticket, which has the details of the loan, including the interest rate and any additional fees. 
  6. Return within the required timeframe to pay off the loan or extend it (if applicable in your state). 
  7. Pay off the loan, as agreed, to get your item back. 

What’s a Pawn Shop Title Loan?

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. 

Do Online Pawn Shop Loans Exist?

A few online pawn shop loans exist. Some specialize in high-end items like luxury watches, gold, expensive jewelry, and designer handbags.

How Online Pawn Shops Work

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:

  1. Provide information about the item you want to pawn, often with photos and certificates of authenticity.
  2. Get an initial offer and either accept or reject it.
  3. Ship your item to the address provided. (Sometimes with a pre-paid shipping label or envelope.)
  4. Receive a final appraisal and offer.
  5. Receive the agreed-upon funds once you accept.
  6. Repay the loan within the agree-upon timeframe with fees and interest.
  7. Receive your item back in the mail.

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.)

Are Pawn Shop Loans Safe?

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. 

Pawn Shop Loan Alternatives

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:

  • Payday Loans: While not the most ideal option, payday loans can be a better option for fast cash, especially if the items you have to bargain with are necessary for your life or high sentimental value. Fees and interest rates can be higher than a pawn shop loan, but you also don't have to provide collateral.
  • Personal loans: You can get a personal loan from a bank, credit union or another financial institution. Unsecured personal loans don’t require collateral, but these types of loans do often require a minimum credit score and can have high fees attached. There are also secured personal loans, but those do require a type of collateral, making them only sometimes better than a pawn shop loan.
  • Installment loans: With this loan, you borrow a lump sum loan amount and repay it with a fixed number of payments over time. Car loans and home equity loans are examples of installment loans. Installments can be weekly, biweekly or monthly. These loans can be secured or unsecured.  (Loans from Possible fall into this category.)

Why Choose Possible Over a Pawn Shop Loan?

  1. An installment loan from Possible Finance can quickly get you up to $500*.
  2. You repay over time.
  3. You don’t have to risk high-value or sentimental possessions.
  4. You can reschedule payments up to 29 days in our easy to use phone app.
  5. We report your on-time payments to two of the major credit bureaus, so you may see a boost in your credit. 

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. 

Melinda Sineriz

Melinda Sineriz is a financial writer and editor who resides in Toledo, Ohio. She has a bachelor's degree in English from Miami University in Oxford, Ohio. She also has a Master of the Arts in Teaching from Bard College. Melinda has been writing about personal finance for over a decade, with a full-time focus over the past few years. She also worked in insurance for five years, including as a licensed life and health insurance agent. She specializes in writing about mortgages. student loans, personal loans, insurance, managing credit and debt, and credit cards. She enjoys helping people make informed financial decisions. When she's not working, she's reading, avoiding writing a novel, or spending time with her dogs and cats.

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