Is a Pawnshop Loan Ever a Good Idea?

Payday lenders, title lenders and pawnshops all market their services to borrowers who lack other options for fast cash. Of the three, pawnshop loans are the least toxic.

Interest rates on pawnshop loans vary and typically are presented as fees, but it’s more useful to compare loans in terms of annual percentage rate:

• Pawnshop loans can run to more than 200% APR.

• Payday loans and car title loans can easily top 400% APR.

To be clear, we do not recommend pawnshop loans. But if you have no other options and need cash immediately, a pawnshop loan is better than an auto title loan or payday loan.

To get a pawn loan, you go to a pawnshop with something you own that you’re willing to leave there as collateral. The staff assesses the item’s value, condition and resale potential, then decides whether to offer a loan.

Nolo.com estimates pawn loans run about 25% to 60% of resale value. It can pay to shop around and compare offers from several pawnshops; offers can vary up to 258% on average for the same item, according to an analysis by PawnGuru, an online marketplace.

If you accept a loan, you walk away with the cash and a pawn ticket, which you’ll need to get your item back. We suggest taking a photo of the ticket and emailing it to yourself as backup.

Because you have left collateral with the lender, a pawn loan doesn’t require a credit check, bank account or co-signer. You must be 18 or older and show proof of your identity. And pawnshops are in regular contact with law enforcement to avoid dealing in stolen goods, so the shop may require proof of purchase or ownership of the item.

Items you can pawn vary by store and location. High-demand items typically include:

• Jewelry

• Firearms

• Musical instruments

• Current electronics

• Name-brand digital camera equipment

You then return within the agreed-upon time, usually 30 days to a few months, to pick up the item and pay off the loan (plus fees and interest). Fees vary by state and can include application and appraisal fees, plus insurance and storage charges.

If you can’t repay within the original term, you may be able to extend or renew the loan (depending on the laws in your area). If you can’t repay the loan, the pawnshop sells your item to get its money back.

The average pawnshop loan is about $150, according to the National Pawnbrokers Association. In recent years, pawning has gone online, sometimes attracting upscale customers. Pawngo will lend up to $5 million for the right assets.

Pawnshop loans can appeal to consumers who can’t qualify for a conventional loan. They may cost less than the penalty for being late with a credit card payment or a reconnect fee for utilities.

They typically cost more than a traditional personal loan, but you also get the money faster and without the need for a credit check.

There’s no legal requirement to repay, so your credit scores won’t suffer if you don’t repay the loan, nor will you be harassed by debt collectors or sued if you don’t repay.

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About 15% of pawn loans are never repaid, according to the National Pawnbrokers Association, and repeat customers are common.

If you find yourself reborrowing or extending a pawn loan, or pawning and redeeming the same item repeatedly, you need more than this short-term financial patch.

But the biggest downside is the cost. An APR of 36% is generally accepted by personal finance experts and regulators as the upper end of affordability for any loan. A pawnshop loan of $100 that costs $15 in fees and is due in 30 days runs about 182% APR.

If a pawnshop does not disclose an APR — many will talk only of fees, or give interest per month rather than year — use this calculator to find the APR:

If you need cash today — the electricity is about to be cut off or rent is due — consider these alternatives:

Payroll advance: Will your employer advance money from your next paycheck? Can you use an online service such as Earnin, which pays hourly workers the same day they work?

Bill forbearance: Can you contact your utility or other creditor for another day or two of grace?

Community assistance and payday alternatives: Can you get a loan or assistance from a local agency to help with rent, utilities or emergency need? Will your place of worship offer small loans or help?

Selling: If you’re willing to part with the item you’re pawning, consider selling it to a pawnshop or private buyer. A private buyer will likely pay more but take longer. Pawnshops usually offer less because they have to cover overhead — but you’ll get the money more quickly. Either way, a sale will likely net more than a pawn loan.

Existing banking relationship: See whether it’s possible to get a small-dollar loan from your bank or credit union, because those have much lower APRs than a pawn loan.

Personal loans: You could consider an online personal loan, but loan amounts generally start around $2,000, and they tend to require credit scores of at least 580.

Once this cash shortfall is resolved, plan ahead for the next time.

Research has shown that even a small emergency fund — as little as $250 — can protect families from eviction, missed payments and needing to enroll in public benefits. To get started, explore ways to find some extra cash or savings.