Pawn Shops: A Guide for Novice Pawners

Dayton Uttinger  | 

You need cash quick; try not to panic. You have options, even if you can’t count on any friends or family to loan you money. Especially if you want to avoid personal or payday loans, many of us have a storage unit full of things collecting dust. What if you could use these nick nacks as a way to get money quick, and without all the fuss and uncertainty of a yard sale?

What Is a Pawn Shop?

A pawn shop is a place where you can either outright sell items to the store or you can use them as collateral for a loan. If you don’t return to pay back the amount of money you borrowed before a set period of time, pawn shops can then sell the items used for collateral to the public as a way to make revenue. Although pawn shops are often portrayed as shady, they are regulated both by states and the federal government. They can be a great alternative to a thrift store if you are looking for used goods, but they can be a way to get cash quickly too. Pawnbrokers actually prefer that you get a loan over outright selling items, since they stand to make more money that way.

How Do Pawn Shop Loans Work?

Let’s say that you have a valuable necklace that you don’t really wear that often. You can offer this necklace as collateral for a loan. While the item that you offer doesn’t have to be worth a lot of money necessarily, your loan will be a percentage of the item’s worth, so it helps if the item that you are using is expensive. The typical pawn shop loan is around $100.

The pawnbroker will assess the value of the necklace, and you can negotiate on what the amount of your loan will be. If you reach an agreement, the pawnbroker keeps the item until you pay off the loan. If you don’t pay it back by the end of the loan, then the pawnbroker will sell it in their shop.

Secured vs Unsecured Loans

Pawn shops offer a secured loan, meaning that you have to offer something up as collateral just in case. Unsecured loans, such as those typically given at a bank or a payday loan center, are not based on collateral. Instead, they compensate by either relying on your credit score or having excessively high interest rates. Pawn shops can offer loans without the need for a credit check or even much of an application process, so they can be an option when time is short or borrowers have poor or limited credit.

Whatever you posted as collateral allows the pawnbroker to loan you money without depending on you to repay the amount borrowed. They have the security of knowing that even if you don’t pay back your money, they’ll at least have the item that they can sell, usually at a higher price than the loan amount. This way, pawn loans allow the lender to profit, without the borrower having to worry about being sent to collections or falling into delinquency.

Paying Back a Pawn Shop

Chances are that you want to get that item back, otherwise you would have already sold it. However, you’re going to have to pay more back than just the initial loan amount. Pawn shops give you a couple months to pay back the initial amount plus interest and fees. Some states restrict the interest rates of pawn shop loans, so be sure to look up if your state allows exorbitant rates before you consider posting a precious item as collateral.

Some rates are as low as 3 percent, others are over 200 percent. This is something you’ll want to be very clear with the pawnbroker on. You might be able to get your collateral back relatively easy if the interest rate and fees are low, but it is much harder to do if they’re high. Fortunately, you don’t go into debt if you are unable to repay your loan and interest; the item simply goes up for sale to the general public. The price will generally reflect the value of the original loan, plus a markup at least somewhat similar to what the interest and fees would have totaled.

Are Pawn Shops a Good Idea?

If you are confident that you’ll be able to pay back the loan by the due date, then the answer is probably yes. Compared to other more traditional types of loans, pawn shop loans are a low risk way to get through small emergencies— you don’t want a check to bounce, you want to keep the lights on before your paycheck comes in, etc. The only penalties you face would be losing whatever you put up as collateral, and there are no credit checks or complicated applications involved. You are essentially taking on a loan without taking on any debt, so it will neither help nor hurt your credit score. However, they are probably not a sustainable means of keeping cash in your pocket, unless you have an endless amount of valuable antiques in your basement.

If you’re really having trouble deciding, consider the pros and cons:

Pros

  • No credit check necessary.
  • Immediate cash in hand
  • If you fail to pay back the loan, there will not be any blemishes on your credit report and there will be no collections on your debt. They will simply keep the item, and that’ll be the end of the story.

Cons

  • Possible high interest rates.
  • Your loan will be for a much lower amount than what the actual item is worth.
  • You run the risk of losing the item.

If you are in an immediate emergency that could be solved with a quick $100, then pawn shops might be a good idea. As long as you are alright with the possibility of losing the item, or you are confident in your ability to pay back the loan, then pawn shops can be the best way to avoid a disaster.


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Dayton is a chronic Wikipedia addict, which is detrimental to her social life but stellar for her writing. She resides in Boise, ID, surrounded by her own frantic outlines, highlighted encyclopedias, and potatoes. The latter was not by choice.

This post was updated November 15, 2017. It was originally published November 15, 2017.