How do pawnbrokers work? | Personal loans and advice


If you need money immediately and you have something of value, you might consider taking out a pawnbroker.

These secured loans are relatively quick and easy. You will go to a pawnbroker and offer your property as collateral in exchange for cash.

But a pawn loan is different from other types of debt because you don’t have to pay it back, as long as you agree to waive the collateral. Although pawnbrokers have some advantages, you should understand all of their features before using one.

How do pawnbrokers work?

If you want a pawn loan, the pawnbroker will not remove your credit but rather offer you a loan based on the value, condition and resale potential of your item. How much you get depends largely on the pawnbroker, who can lend as little as 15% or as much as 60% of the resale value of the item.

The store also decides which items it accepts. You may, for example, be able to pawn electronics, musical instruments, tools, firearms, jewelry and artwork, and other property. You will need to be at least 18 years old, show ID and may need to confirm you own the item.

If you accept a loan, you will receive money and leave your item with the store as collateral. You will obtain a ticket, used after the repayment of your loan to recover your property.

Loans are generally small. The average pawnbroker is $150 nationwide and paid off in about 30 days, according to the National Pawnbrokers Association.

Loan terms, interest rates, and fees for pawnbrokers vary widely from state to state. Stores will typically hold your collateral for at least 30 days before selling it and charge interest rates of 12% to 240% or more. They may also add storage and insurance costs.

If you cannot repay your loan in full by the due date, you may be able to extend or renew it. The pawnbroker may ask you to pay fees or accrued interest on the loan. But if you can’t repay the loan at all, you lose your collateral to the pawnbroker.

How are pawnbrokers different from payday loans?

A payday loan is usually a short-term, high-cost loan of less than $1,000 that is paid off on the borrower’s next payday. These loans come with annual percentage rates of nearly 400% and fees of $10 to $30 for every $100 borrowed, according to the Consumer Financial Protection Bureau.

Payday loans and pawnbrokers share some similarities but are not identical. Both are low-value, short-term, no-credit-check loans from non-bank lenders. But pawn loans are usually much smaller than payday loans, may have slightly lower interest rates, and don’t require repayment.

Either of these loans is not good for your finances.

“Payday loans can put you in a cycle of taking out a new loan to pay off the old loan, and the interest rates are very high,” says Amy Lins, vice president of customer success at Money Management. International, a non-profit credit counseling agency. . “A pawnbroker can end up being very expensive if you can’t redeem the item and the pawnbroker sells it.”

Advantages and disadvantages of pawnbrokers

  • No legal obligation to repay the loan. About 15% of pawnbrokers are never repaid. “You can walk away from a pawn at any time without any recourse,” says Kelly Swisher, owner of Arlington Jewelry & Pawn in Illinois. This means you won’t be harassed by debt collectors or sued if you don’t pay.
  • No effect on your credit. A pawnbroker will not remove your credit before making a pawn or reporting the loan to the credit bureaus. If you can’t repay the loan, you won’t see your credit suffer.
  • Quick access to cash. You can wait a few days with a traditional loan to get the money, but a pawnbroker can take a few minutes.
  • Generally less costly than credit card and bank penalties. Fees and interest charges on pawnbrokers can cost less than the penalty for each overdraft in your checking account or the late fees on your credit card bill. Overdraft fees can cost up to $35 per incident and late fees can reach up to $41, and you risk damaging your credit score when you miss a credit card payment.

  • Loss of warranty. You will lose your collateral if you cannot repay your loan.
  • Potentially high cost. Interest rates on pawnbrokers can reach triple digits in some states. That’s much higher than 36% APR, which consumer advocates say is the upper limit for affordable small loans. You might also pay storage and insurance or loan renewal fees.
  • Not a long term financial solution. “Quick loans fill a short-term need but cannot solve the underlying problem,” Lins says. If you regularly run out of money before payday, this may be a sign to reduce your expenses or increase your income if possible.
  • Dishonest pawnbrokers. The Consumer Financial Protection Bureau has taken legal action against pawnbrokers for allegedly misrepresenting annual pawnbroking costs.

When using a pawnbroker might make sense

A pawnbroker can work in a few different situations. This might make sense in a financial emergency if you need some cash fast and you know you’ll have the money in 30 days to pay off the loan. You can also choose a pawnbroker if you don’t have a bank account or don’t qualify for a traditional loan.

“They may be the cheapest or even the only option for some people with poor credit to get a loan,” says Erik Carter, certified financial planner at Financial Finesse, a provider of workplace financial education. “You can get the money pretty quickly, and losing the warranty can be a lot less than losing your home or vehicle.”

However, a pawnshop “should be a loan of last resort,” Lins says, because it can get expensive. You also may not be able to borrow enough if you need more than $150 – the average pawnbroker – and should explore alternatives if you are not comfortable giving your valuables as collateral. .

Alternatives to pawnbroking

  • Private sell. You can usually sell valuables directly to a pawnbroker instead of taking out a pawnbroker, or use an online platform like Facebook Marketplace. “You’ll be able to keep the full resale value,” Lins says. “It will make you more money than pawning the item.”
  • Due date extensions. If you’re trying to stretch your budget until payday, contact your creditors to see if they’ll offer you a grace period or set out a realistic payment plan.
  • Payday advance. Some employers partner with third-party services that give workers a portion of their pay earlier. These services may not come with fees and interest, but check the terms before agreeing to anything. Alternatively, you can try an app like Earnin or Brigit for payday advances with no credit checks or interest.
  • Personal loans. A small dollar personal loan from a bank or credit union usually comes with a credit check, but could be much cheaper than a pawnshop or payday loan.
  • Alternative payday loans. Also known as PALs, these are short-term loans offered by some federal credit unions. Borrowers can typically borrow between $200 and $1,000 and repay the money in one to six months. To take out one of these loans, you will need to be a member of a credit union for at least one month and pay an application fee of up to $20.
  • Community resources. Call 211 or visit to find local organizations that can help you if you’re struggling to pay for food, healthcare, and housing, including utilities.
  • Credit advice. If you regularly take out pawn loans to make ends meet, you may benefit from consulting with the National Foundation for Credit Counseling. The initial consultation with a credit counselor is usually free. For a small fee, a counselor can also help you “set up a budget, review debt repayment options, and refer you to other agencies for help with bills,” Lins says.


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