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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 usually the least harmful.
Interest rates on pawnshop loans vary by state and typically are presented as fees, but it’s more useful to compare loans in terms of annual percentage rate. While payday loans and car title loans can easily top 400% APR, pawnshop loans may be around 200% APR.
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» MORE: The best ways to borrow money
How pawnshop loans work
To get a pawn loan, you go to a pawnshop with something you own that you’re willing to leave as collateral. The staff assesses the item’s value, condition and resale potential, then decides whether to offer a loan.
Nolo.com, a website that answers legal questions, estimates pawnshops will lend you about 25% to 60% of resale value. It can pay to shop around and compare offers from several pawnshops since quotes can vary substantially.
If you accept a loan, you walk away with the cash and a pawn ticket, which you’ll need to get your item back. You can take a photo of the ticket and email it to yourself as backup in case you lose it.
Because you left collateral with the lender, a pawn loan doesn’t require a credit check, but you must be 18 or older and show proof of your identity. 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 may include jewelry, firearms, electronics, collectibles, tools and musical instruments.
You then return within the agreed-upon time, usually 30 days to two months, to pick up the item and pay off the loan (plus fees and interest). Fees vary by state and can include insurance and storage charges.
If you can’t repay within the original term, you may be able to extend or renew the loan. If you can’t repay the loan, the pawnshop sells your item to get its money back.
The average pawnshop loan is about $150 and is repaid in about 30 days, according to the National Pawnbrokers Association.
An installment loan may be a more affordable way to borrow money. These loans let you borrow the money all at once, then pay it back in fixed monthly payments over a period of months or years, instead of weeks. You won’t need to put up collateral, and loan amounts tend to be higher, while interest rates are usually lower. Lenders typically require a credit check to apply, but you can find installment loans for bad credit.
Pros and cons of pawnshop loans
Pros of pawnshop loans
No credit check: Pawnshop loans may appeal to consumers who can’t qualify for a conventional loan, since they don’t require a credit check.
Quick access to funds: With a pawnshop loan, you get the money in-hand right away, so you don’t have to wait for funding like a traditional personal loan.
Failure to repay only results in losing the pawned item: There’s no legal requirement to repay a pawnshop loan, so your credit score won’t suffer if you don’t repay, nor will you be harassed by debt collectors or sued. The only consequence is losing your item.
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Cons of pawnshop loans
High cost to borrow: The biggest downside to pawning is the cost. Consumer advocates consider an APR of 36% to be the upper end of affordability for any loan. A pawnshop loan of $100 that costs $10 in fees and is due in 30 days runs about 122% APR.
May lead to repeat borrowing: About 15% of pawn loans are never repaid, according to the National Pawnbrokers Association, and repeat customers are common.
Won’t solve bigger spending issues: If you find yourself reborrowing or extending a pawn loan, or pawning and redeeming the same item repeatedly, you may need more than this short-term financial patch.
If a pawnshop does not disclose an APR — many only list fees, or give interest per month rather than year — use the calculator below to find the APR.
» MORE: 19 ways to find fast cash
Alternatives to pawnshop loans
Before going to a pawnshop, consider more affordable alternatives. Most of these options can deliver funds within a few days.
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 than a pawnshop, but it may take longer. Either way, a sale will likely net more than a pawn loan.
Payday alternative loans: A payday alternative loan, or PAL, is a type of small loan offered by federal credit unions that caps the cost of borrowing, so it’s easier to repay. You’ll need to become a member of the credit union before applying for a PAL.
Small-dollar loans: Mainstream banks like Wells Fargo, U.S. Bank and Bank of America offer short-term, small-dollar loans to existing customers. These loans will likely cost less than a pawn loan, but you may have to undergo a credit check. You can also get a small-dollar loan from an online lender.
» MORE: Best small-dollar loans
Bill forbearance: If you’re trying to stretch until your next paycheck, contact your utility or other creditor and see if they will extend a grace period.
Community assistance: If you need to cover rent, utilities or other necessary expenses, see if you can get assistance from a local agency. Charitable, religious or other community-based organizations have funds dedicated to assisting community members in these circumstances.
Personal loan from a credit union or online lender: Credit union personal loans start around $500 and may offer low rates for bad-credit applicants, but you’ll need to become a member first. Personal loans from online lenders are faster but may come with higher interest rates.
» COMPARE: See your bad-credit loan options
Cash-advance apps: Cash-advance apps like EarnIn and Dave can provide an advance on your paycheck a few days early. Look for an app that charges minimal fees or interest.
“Buy now, pay later” plans: Buy now, pay later apps break the cost of a purchase into equal installments, typically due over six weeks, with zero interest. This can stretch your dollars further for the month if you’re short on cash, but be sure to repay the installments on time.
Breaking the debt cycle
Once this cash shortfall is resolved, plan ahead for the next time. A good place to start is by saving for an emergency fund. NerdWallet recommends a savings goal of $500.