7 Things to Remember When Getting a Pawn Shop Loan

[May 19, 2009.]

 

Pawn shops offer fast loans to people who often have nowhere else to turn. As the recession has deepened, more people have found themselves turning to pawn shops for personal loans. About 30 million Americans get no credit check loans from pawn shops each year, and the average amount of individual loans is $80, according to the Pawnbrokers Association. Here are 7 things to remember when considering a loan from a pawn shop.

1. Pawn shops makes personal loans to people who bring in items as collateral. Common items that are pawned are jewelry, TVs, cellphones, cameras, guns, musical insruments, etc. Borrowers receive a ticket that lists the items they pawned, amount of their loan, and when the money is due.


2. Pawnbrokers are required to give police a list of items that have been pawned to screen out stolen merchandise.


3. Although pawn shops offer fast loans, they aren't cheap. Pawn shop loans come with annual percentage rates that can be as high as 300% depending upon a state's usury laws. For instance, New York limits the amount of interest that can be charged on small loans to 25%.


4. Generally, any loan a person receives won't be anywhere near the market value for the item being pawned. Appraised values are used and in many cases borrowers may be lucky to get 25% of the current retail price of their item. Some borrowers may be able to negotiate a better loan rate. In some cases people may make out better trying to sell their item on eBay.


5. Many pawn shop loans are for a period of 30 days. But borrowers can usually extend that period by paying a monthly storage fee. Interest will continue to accumulate as long as the item is being held.


6. Pawn shops offer no credit check loans.


7. Not paying off a loan won't hurt a borrower's credit score. The shop will simply keep the borrower's property and sell it. 

While pawn shops offer fast loans to people who need help, it's also important to look for alternative sources of money that may be less expensve in the long run. Often, people who get this type of fast loan find themselves caught in a cycle of interest that stretches on and on because they never scrape together enough money to reclaim their property.

Pawn shops have come a long way from their old image of being places to unload stolen goods and are often brightly lit establishments that don't appear any different from other retail stores. But consumers should still use caution when taking on personal loans that come with high rates of interest.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.