Pawnshop Loans: Should You Use Them for Quick Cash?

Whether it’s a car repair, a home repair, or an unexpected bill, there are dozens of reasons why you might need extra cash.

But while some people can dip into their personal savings or use a credit card for unexpected expenses, this might not be an option for you. 

Sure, you can borrow cash from friends or family. But this approach invites others into your personal business.

So:

You might consider a pawnshop loan to handle the issue yourself. 

Although a viable solution, is it the best solution for you?

Here’s what you need to know about pawn shop loans to determine whether they make sense.

How Do Pawn Shop Loans Work?

Pawnshop loans are different from title loans and payday loans. With a title loan, you pledge your car title as collateral for a loan, typically for an amount over $1,000. 

A payday loan, on the other hand, is a short-term loan that provides extra cash until payday. Both can put quick cash in your pocket without a credit check or cosigner. But since these loans are risky, you might consider a pawn shop loan instead.

A pawn shop loan provides a collateral-based loan secured by a personal item.

A valuable item as collateral

Basically, you take an item of value—electronics, jewelry, etc—to the pawn shop. And based on its value, the pawn shop gives a short-term loan.

The shop retains the item until you repay the loan.

But unfortunately, it’s not a free loan.

Look:

The pawn shop has to make money off of the deal, so you can expect to pay a loan fee. When it’s time to retrieve your item, you’ll pay back the loan amount plus any finance charges. 

These fees can vary considerably from pawnshop to pawnshop and from state to state.

If you don’t return to retrieve your item, maybe because you no longer need it or because you don’t have money to repay the loan, the pawnshop keeps your item. 

At this point, they’ll sell your item and use the proceeds as repayment.

Since there’s a chance that the pawnshop will have to sell the item, the loan you receive will be less than the actual value of your security.

What Are the Pros of a Pawnshop Loan?

Before deciding whether a pawnshop loan is the right choice for you, make sure you understand the pros and cons. The benefits of a pawnshop loan include:

1. Fast cash 

Pawnshop loans are much quicker than getting a personal loan.

It can take a couple of days to apply and get approved for a personal loan, which is a problem when you need immediate cash.

You can visit a pawn shop right now and walk out with a same-day loan.

2. No credit check

Bad credit prevents some people from getting a credit card or a personal loan.

The good news about a pawn shop loan is that it doesn’t involve credit. It’s a collateral-based loan, so there’s very little risk to the lender. 

You can get a pawnshop loan whether you have no credit, bad credit, or good credit.

Also, if you don’t repay the loan, you don’t have to worry about collection activity or a negative ding on your credit report.

3. Flexible loan terms

If you get a payday or cash advance loan, you typically have 14 to 30 days to pay back the money. This might be too soon. A pawn shop loan is a bit more flexible. 

Depending on the pawnshop, you may have up to four months to repay the loan and retrieve your item.

Some pawnshops may even extend your loan term, although you’ll pay additional fees.

What Are the Cons of a Pawn Shop Loan?

But while a pawn shop loan is a short-term solution to cash-flow issues, there are a few drawbacks.

1. You can’t pawn everything

In a perfect world, you'd be able to pawn any personal item for a collateral-based loan. But this isn’t how it works. 

Pawnshops are only interested in certain items. And typically, they don’t offer loans on items that are old and cheap, or items that would be difficult to resell. 

Therefore, you might not be able to pawn an outdated, box television. Your chances are much higher with a newer flat-screen television. The same applies to video game consoles, cell phones, toys, and the like. 

Good items to pawn include jewelry, musical instruments, appliances, electronics, firearms, tools, coins, and collectibles.

2. Losing your pawn ticket could result in losing your item

If you decide to pawn an item for a short-term loan, be mindful that you must return with your pawnshop ticket.

This is proof that you’re the owner of the item. The ticket includes important details about the transaction, including fees, terms, and a description of your item.

Now, rules vary from pawnshop to pawnshop.

Therefore, some pawn shops may allow you to reclaim an item after losing the ticket. In this case, you’ll present your ID instead. But don’t count on this. 

Some pawnshops don’t keep transaction history reports. So the only way to get your item back is to show your ticket.

What Are Alternatives to a Pawn Shop Loan?

Of course, a pawn shop loan isn’t the only way to get your hands on quick cash.

Depending on your situation, it might be financially beneficial to consider other alternatives. For example:

1. Set up a payment arrangement

If you need cash for a utility bill or a medical bill, skip the pawnshop loan and speak directly with your creditor. Ask to set up an alternate due date. 

Many utility companies and medical offices are flexible and allow extensions without financial penalty. This might be an option when you only need a few extra days to drum up the cash. 

If you set up a payment arrangement with a doctor’s office or hospital, they may allow interest-free payments over a period of several months. 

2. Rather than pawn, sell an item outright

It’s risky to pawn an item of sentimental value.

There’s always the chance of not being able to repay the loan. Rather than take this risk, sell items you no longer use for cash. 

Go through your closets, attic, basement, and garage and round up items collecting dust. Have a yard sale or list items for sale online. You might earn way more than you need. 

You can take care of an unexpected expense, and put any leftover money in savings for the next rainy day.

3. Get a payroll advance

Ask your job for a payroll advance.

Let’s say you need an extra $250. Your employer might approve the request, and then deduct the advance from your next paycheck. 

For this to work, though, you’ll probably need to be a long-time employee. Also, your employer may only allow one payroll advance every six or 12 months, so you can’t abuse this option.

4. Compare personal loans

Pawnshop loans are best for short-term loans and smaller amounts.

If you need a bigger loan— maybe for a home improvement project—you might do better with a bank loan. 

You can get a personal loan with or without security, and you’ll have more time to repay the loan. Whereas a pawn shop loan may require full repayment within three months, a bank may allow 12 to 24 months to pay off a loan. 

Now:

Keep in mind that personal loans involve a credit check, and if you get a no-collateral personal loan, you’ll pay a higher interest rate.

Pledging collateral, however, can help you snag a better rate. 

If you decide to get a personal loan, shop around and compare rates and terms. Ideally, you should speak with at least three different lenders.

Final Word: Is a Pawn Shop Loan for You?

A pawn shop loan can be a great alternative when you need immediate cash and you’re confident in your ability to repay the loan and reclaim your personal item. 

But it’s important that you understand the terms of an agreement. Ask questions about fees and repayment. If you feel uncomfortable at any time, walk away. 

More importantly:

Don’t feel that a pawn shop loan is your only option. Maybe it is, but at least consider other alternatives, too.

Ask your employer about a payroll advance, consider selling items, and don’t dismiss the possibility of a personal loan.

Between a longer repayment term and a competitive interest rate, a personal loan might be the better option.