Are Pawn Shop Loans a Good Idea?
A pawn shop loan is a short-term, secured loan that lets you borrow against an item you own — no credit check required. That makes it a common emergency financing option, but the costs can be steep. They can make sense in a pinch, but only if you’re confident you can repay quickly and are prepared to lose the item if you can’t.
How do pawn shop loans work?
A pawn shop loan uses an asset that you own as collateral, in exchange for a cash payment. Nearly any item of value can be used — firearms, jewelry, electronics and more. The pawnbroker will appraise the item and offer you a percentage of its anticipated resale value.
These are typically small, short-term loans. The National Pawnbrokers Association estimates the average pawn shop loan is $150 with a 30- to 90-day repayment window. Each state regulates how long loans can be and how much interest you can be charged.
The biggest benefit of pawn shop loans is that loan requirements are lenient compared to other forms of lending. You don’t need to provide proof of income or submit to a hard credit pull. You simply need to prove that you own the item you’re using to secure the loan.
Steps to get a pawn shop loan
- Bring your item and prove ownership. The pawnbroker will ask questions to assess its value.
- Receive a loan offer. Expect 25% to 60% of the item’s anticipated resale value, plus fixed interest and possible fees. Pawn shops typically charge between 5%-25% interest per month (60%-300% APR) depending on where you live.
- Accept and get a pawn ticket. This is your receipt. It lists the loan amount, interest rate, fees and repayment deadline. You’ll need it to reclaim your item.
- Repay within the window to get your item back. If you repay successfully, your asset is returned. If you can’t repay, the pawnbroker keeps the item and any profit from selling it, but it won’t affect your credit score. Pawn shop loans aren’t reported to the credit bureaus.
Pawn shop loan example: You pawn a jewelry set worth $500. Assuming the pawnbroker offers 25% of its resale value at a 25% monthly interest rate, here’s what that could look like:
| Item value | $500 |
| Loan offer (25%) | $125 |
| Repayment term | 30 days |
| Interest rate | 25% per month |
| Interest owed after 30 days | $31.25 |
| Total due in 30 days | $156.25 |
If you can’t repay, the pawnbroker keeps the jewelry set.
If you can qualify for a personal loan, you may be able to get a better deal than with a pawn shop loan. While the interest rates on pawn shop loans can extend up to 60%-300% APR (5%-25% per month), the average personal loan APR is .
When do pawn shop loans make sense?
Most of the time, you’ll be better off applying for a personal loan through a traditional lender. Often, personal loans can help you save money, build credit and access more funding than pawn shop loans. Still, there are a few occasions where choosing a pawn shop loan may make financial sense, including:
- You need fast cash: Some personal loan lenders offer quick loans for fast cash. However, if you don’t want to undergo a credit check, a pawn shop loan can help you access funds in a matter of minutes without consideration for your credit.
- You only need to borrow a small amount: Since you’re only borrowing a percentage of an item’s value, pawn shop loans typically have fairly small loan amounts. If you need to access hundreds or even thousands of dollars, you may need to look into alternative options.
- You’re okay with using an item as collateral (and potentially losing it): If you are unable to pay back your pawn shop loan by its due date, the pawnbroker could sell your asset. If the item isn’t important to you, it may be worth the risk. But if you value your asset and aren’t positive you can repay a loan, you may want to look elsewhere.
- You’re unbanked: When you don’t have access to a bank account, getting funding through traditional channels can be much more difficult. In this case, pawn shop loans can provide you with necessary funding and be a more affordable alternative to payday loans. Plus, it won’t affect your credit.
Pros and cons of pawn shop loans
Pros
- Easier to qualify for: Only need proof of identity and ownership. No income verification or credit check.
- Quick cash: Funds available same day, often within 30 minutes, faster than most traditional lenders.
- No credit impact: Pawn shop loans aren’t reported to credit bureaus so defaulting won’t hurt your credit score.
Cons
- Risk of losing collateral: If you can’t repay, the pawnbroker keeps your item and the profit from selling it.
- Small loan amounts: Small loan amounts: You’ll only receive 25% to 60% of your item’s resale value, so large funding needs won’t be met.
- Can be expensive: Interest rates can be much higher than other financing options, including personal loans.
Alternatives to pawn shop loans
If a pawn shop loan isn’t the right fit, here are some options worth considering:
- Sell your items: A private buyer on OfferUp or Facebook Marketplace may pay more than a pawnbroker, and there’s nothing to repay.
- Save up in an emergency fund: Takes longer, but keeps your asset safe and avoids fees and interest entirely.
- Consider a payday alternative loan (PAL): Short-term loans offered by credit unions with APRs capped at 28%. You must be a credit union member to apply.
- Download a paycheck advance app: Apps like Chime, dailypay or Earnin let you access earned wages a few days early. Just be sure to research an app’s fees before getting started.
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Use a buy now, pay later (BNPL) program: If you’re making a purchase, apps like Affirm and Klarna let you split the cost into installments.
Just note that 47% of BNPL users have paid late in the past year, per a LendingTree survey, so only use it if you’re confident you can keep up with payments. - Request a due date extension: Some utility providers and creditors offer forbearance programs that let you extend the grace period for your payment. Contact your provider before the due date to ask about the options available.
- Research community assistance: Local charities and nonprofits may have funds available for essential expenses like rent and utilities.
Other ways to manage debt
If you’re dealing with ongoing debt, here are a few steps that can help:
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Make a budget: Tracking your spending can clarify where your money is going and help you allocate income toward paying down debt.
- See LendingTree’s full guide on how to budget to pay off debt.
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Follow a debt payoff plan: Methods like the debt snowball or debt avalanche can make tackling multiple debts feel more manageable.
- See LendingTree’s full guide on debt relief.
- Consider credit counseling: A certified credit counselor can help you build a repayment strategy and work with your creditors on your behalf.
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