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Pawn Shop Loans Pros & Cons

A pawn shop loan may be an option if you need cash urgently and have a basement full of high-value items.

The chances are that you will walk out with cash if you bring something of value to the pawnshop. Let’s examine how pawnshop loans work and the drawbacks and benefits.

What is the process of pawn lending?

A pawn loan is a fast way to borrow money, unlike a personal loan. It doesn’t require a credit check and does not require an application process. The value of the item you are pawning will determine the amount of your loan.

If you have a guitar of a particular brand, you can bring it to a Pawn Shop so that a Pawn Broker can determine its value. The pawnbroker will likely give you a loan up to the value of your guitar once it has been appraised.

The terms for pawnshop loans can vary, and they often have high-interest rates. Some states have taken steps to regulate the industry.

You can borrow the money right away if you apply for a loan from a pawnshop. To reclaim your item, you will typically have to repay the entire amount of the loan. However, the time it takes to repay the loan may vary from one state to the next.

For example, in North Carolina and Florida, pawnshop loan contracts have a 30 day grace period. The average American pawnshop loan is $150, according to the National Pawnbrokers Association.

Pawnshops are now digitalized, with Pawngo claiming they can lend as much as million for the right items. Pawning a wide range of valuables is possible, from collectible coins to cars.

The pros of pawnshop loans

If your credit score is not good and you cannot get a traditional loan, pawnshop loans may be an option.

Pawn loans are a fast way to get money for people who don’t have a bank account or can’t find a cosigner. There is no credit check and no risk.

Your credit score will not be affected by your failure to repay the loan. You won’t even have to worry about being contacted by debt collectors. If you don’t repay a pawnshop loan, the pawnshop will keep what you pawned.

The cons of pawnshop loans

The greatest drawback to a pawnshop loan is its high cost.

Pawnshop loans have high-interest rates and high finance charges. Interest rates for pawn shop loans are often between 5% to 25% per month.

The pawnshop may also sell your item if you fail to repay your loan on the due date. If your item sells for more than the loan amount, you will not be reimbursed.

Pawnshops may charge additional fees to cover the storage, insurance, or renewal of a loan for a new term.

Pawnshops can also be difficult to find. Pawnshops are not uncommon. The Consumer Financial Protection Bureau has brought legal action against several pawnbrokers. They claimed they were dishonest about annual loan costs.

Alternatives to Pawn Shop Loans

While a pawnshop loan might not be the right choice for you, other options could get you the cash you need quickly. These are some options to think about.

  • Peer-to-peer online loans –

    These loans are made by individuals and not banks or credit unions. An application will be required. Your options may be limited depending on your credit rating (our guide to credit scores can help you get an idea of your current standing).

  • Side gigs –

    If your goal is to earn extra money to cover an emergency or daily expense, you might consider side gigs. You can do anything from helping out at a restaurant or tutoring children in a library, or renting out a room in your house.

  • Due date extensions –

    Call your creditors if you are in danger of not paying one or more bills by the due date. Explain your situation to them, and they will try to extend your credit.

  • Help from someone close to your heart –

    If you are short on cash, ask family members or close friends if they can lend you some money. This route will save you money on interest.

A payday loan may be an option for you if you are in financial trouble. However, they can prove to be very costly and risky financially.

Payday loans, also known as cash advance loans or payroll advances, are typical $500 or less. The payoff is usually due to the next payday.

Depending on where you live, companies may charge $10-30 per $100 borrowed and heavy fees if your loan is not repaid on time.

Bottom line

In a perfect world, you wouldn’t have to pawn the family’s belongings. If you find yourself in urgent need of cash, a pawnshop loan may be the best choice. Before proceeding, make sure to understand the terms and look at all options fully.


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Jason Rathman