Is a pawn shop loan a good idea for quick cash?

Man appraising a ringImage: Man appraising a ring

In a Nutshell

Pawn shop loans are an option if you need some quick cash. While they do offer some advantages, they also come with drawbacks. Before you decide to pawn your great-grandfather’s watch, understand the pros and cons of pawn shop loans — and think about the alternatives.
Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

If you’re desperate for cash and have a basement loaded with high-value items, you may consider a pawn shop loan.

When you take something of value to a pawn shop, chances are you can walk out with some cash. Let’s take a closer look at how pawn shop loans work, and what the benefits and drawbacks are.

How do pawn loans work?

Unlike a personal loan, a pawn loan can be a quick way to borrow money because it doesn’t involve a credit check or application process. Your loan amount is based on the value of the item you pawn.

For instance, if you own a name-brand guitar, you may bring it to a pawn shop so that a pawn broker can figure out its value. Once its value has been determined, the pawnbroker may give you a loan for an amount up to the appraised value of the guitar.

Terms for pawn shop loans vary and often include high interest rates. This is why some states have stepped in to regulate the industry.

If you move forward with a pawn shop loan, you can get the cash right then and there. You’ll typically be required to pay back the full amount of the pawn loan to reclaim your pawned item, though the amount of time you have to repay the loan can vary from state to state.

For example: In Florida and North Carolina, state laws dictate that pawn shop loan contracts are 30 days, with an additional grace period. According to the National Pawnbrokers Association, the average pawn shop loan in the U.S. is $150.

Pawn shops have recently gone digital, with sites like Pawngo saying they lend up to $5 million for the right items. You can pawn a variety of high-demand valuables — anything from collectable coins to cars.

Pros of pawn shop loans

Pawn shop loans can be an attractive option if your credit is rough and you’re not able to take out a traditional loan.

For people with no bank account or no one to turn to as a cosigner, pawn loans can be a quick source of money — there’s no credit check required.

In addition, your credit scores won’t be affected if you don’t repay your loan, and you won’t have to worry about getting calls from debt collectors. The consequences of not repaying a pawn shop loan are that the pawn shop simply keeps whatever you pawned.

Cons of pawn shop loans

The most significant drawback of a pawn shop loan is its cost.

Interest rates and finance charges for pawn shop loans are often high. It’s common to see interest rates between 5% and 25% a month.

Another disadvantage is that if you don’t repay your loan on time, the pawn shop can sell your item. And you won’t get reimbursed if your item is sold for more than your loan amount.

Some pawn shops also charge additional fees to pay for things like storage, insurance or renewing the loan for a new term.

And pawn shops can be a little sketchy. Legal actions against pawn shops aren’t exactly rare — the Consumer Financial Protection Bureau has taken action against a number of pawn brokers, alleging they were dishonest about the annual costs of loans.

Need a little cash? Some things to know about personal loans.

Alternatives to pawn shop loans

A pawn shop loan may not be right for you, but there are a number of alternatives that may get you the quick cash you need. Here are some to consider.

  • Peer-to-peer online loans — Peer-to-peer online loans come from individuals investors instead of banks and credit unions. You’ll have to fill out an application, and your options may be limited based on your credit (our guide to credit score ranges can help give you an idea of where you stand).
  • Side gigs If you’d like some extra cash to help with an emergency need or day-to-day expenses, consider looking into some creative ways to make money. Anything from waiting tables at a restaurant to tutoring children at a local library or renting out a spare room in your home can help.
  • Due date extensions If you’re in danger of failing to pay one or more bills on time, call your creditors, explain your situation and see if you can get extensions.
  • Help from someone close to you If you’re tight on cash, ask a family member or close friend if you can borrow some money. If you go this route, you’ll be able to avoid costly interest charges.

Getting a payday loan might also cross your mind if you’re in a jam, but they’re a financially dangerous option unless you’re 100% sure you can pay yours back on time — and even then they’re still terribly costly. Also known as a cash advance loan or payroll advance, payday loans are usually for an amount of $500 or less, with payoff typically due on your next payday. Depending on the state, companies may be allowed to charge from $10 to $30 for every $100 borrowed, plus heavy fees if you can’t repay on time.

Bottom line

Ideally, you’ll never be in a position where you have to pawn your family’s valuables. But if you find yourself in need of fast cash and think a pawn shop loan is your best option, be sure to understand its terms and consider the alternatives before moving forward.

About the author: Anna Baluch is a freelance personal finance writer from Cleveland, Ohio. You can find her work on sites like The Balance, Freedom Debt Relief, LendingTree and RateGenius. Anna has an MBA in marketing from Roosevelt Un… Read more.