If you need cash quickly and own something of value, consider taking out a pawn shop loan.
these are secured loan Relatively quick and easy. You head to the pawn shop and bring your property as collateral in exchange for cash.
But pawn loans are different from other types of debt. You are not obligated to repay unless you are okay with deducting collateral. Pawn Loans have some advantages, but you should understand all the features before using them.
How Do Pawn Shop Loans Work?
If you need a pawn shop loan, the pawn shop will offer loans based on the item’s value, condition, and resale potential, rather than drawing credit. The amount you get will vary greatly depending on the pawn shop. Pawn shops may lend you 15% to 60% of the item’s resale value.
The shop decides which items it will accept. For example, you may be able to pawn electronic devices, musical instruments, tools, guns, jewelry and art, and other goods. You must be 18 years of age or older and may be required to show some form of identification to verify possession of the item.
If you accept the loan, take the cash and leave the item in the shop. collateralAfter paying off the loan, you will receive a ticket that you will use to pick up the property.
Loan terms, interest rates, and fees for pawn shop loans vary greatly from state to state. Shops typically hold collateral for at least 30 days before selling it and charge interest rates ranging from 12% to 240% or more. Storage and insurance fees may also be added.
If you cannot pay off your loan in full by the due date, you may be able to extend or renew your loan. The pawnbroker may require payment of fees or interest accumulated on the loan. But if you can’t repay the loan at all, you lose the collateral to the pawn shop.
How are pawnshop loans different from payday loans?
a payday loan A short-term, high-value loan, typically less than $1,000, that is repaid on the borrower’s next payday. The annual interest rate on these loans is nearly 400%, and for every $100 borrowed, he charges a fee of $10 to $30, according to the Consumer Financial Protection Agency.
Payday loans and pawnshop loans have some similarities, but they are not identical. Both are short-term, non-credit-checked, small loans and are from non-bank lenders.But pawnshop loans are usually much smaller than payday loans and can be slightly lower degree of interestno repayment required.
None of these loans are great for your finances.
“Payday loans can go into a cycle of taking out new loans to pay off old ones, and the interest rates are very high,” said vice of customer success at Money Management International, a nonprofit credit counseling agency. President Amy Lins said. “Pawn shop loans can cost you a lot if you can’t redeem the item and the pawn shop sells it.”
Pros and Cons of Pawn Shop Loans
- There is no legal requirement to repay the loan. About 15% of pawnshop loans are never repaid. Kelly Swisher, owner of Arlington Jewelry & Pawn in Illinois, said: i.e. not harassed debt collector If you don’t return it, you will be sued.
- Your credit will not be affected. The pawn shop will not take credit from you or report the loan before you take out a loan at the pawn shop. credit bureauYour credit will not be damaged if you are unable to repay your loan.
- Quick access to cash. It can take days to borrow money with a traditional loan, but with a pawn loan it only takes minutes.
- It usually costs less than a credit card or bank penalty. Fees and interest on pawnshop loans may be less than late fees on checking account overdrafts or credit card bills. Overdraft fees can cost him up to $35 per transaction and late fees up to $41, plus you risk damaging your credit score. When you forget to pay your credit card.
- loss of collateral; If you fail to repay the loan, you will lose your collateral.
- Costs can be high. Interest rates on pawn shop loans can reach into the triple digits in some states. That’s well above his 36% APR, which consumer advocates say is the ceiling for affordable microloans. You may also pay storage fees, insurance premiums, or loan renewal fees.
- Not a long term financial solution. “Same-day loans meet short-term needs, but they don’t solve the underlying problem,” says Lins. If you regularly run out of money before payday, it could be a sign to cut back on your spending or increase your income if possible.
- Rogue pawn shop. The Consumer Financial Protection Bureau has filed a lawsuit against a pawnbroker for allegedly misrepresenting the annual cost of a pawnshop loan.
When Using a Pawn Shop Loan Makes Sense
A pawn shop loan can work in a few different situations. This makes sense if you need quick cash in the event of a financial emergency and you know the funds will be on hand to pay off the loan within his 30 days . If you don’t have a bank account or qualify for a traditional loan, you can also opt for a pawn shop loan.
“They may even be the cheapest or only option for some people. low credit Erik Carter, Certified Financial Planner at Financial Finesse, a workplace financial education provider, said:
However, a pawnshop loan “should be a loan of last resort,” says Lynns. Because it can be expensive. Also, being an average pawn loan he may not be able to borrow enough if he needs more than $150.
Alternatives to Pawn Shop Loans
- private sale. Usually, instead of taking out a pawn shop loan, you can sell your valuables directly to the pawn shop or use an online platform such as Facebook Marketplace. “You can keep the overall resale value,” he says Lins. “This gives you more cash than pawning items.”
- Extension of due date. If you’re looking to stretch your budget until payday, contact your creditors to see if they’ll offer you a grace period or a realistic payment plan.
- Salary advance. Some employers partner with third-party services that provide workers with a portion of their salary early. These services may not incur fees or interest, but please review the terms before accepting. Alternatively, you can try apps like Earnin or Brigit to make prepayments without credit checks or interest.
- personal loan. Small personal loans from banks or credit unions, which are usually credit-checked, can be much cheaper than pawnshop or payday loans.
- Payday replacement loan. Also known as PAL, it is a short-term loan offered by some federal credit unions. Usually a borrower can borrow $200-$1,000 and pay it back in 1-6 months. To get one of these loans, he must be a member of the credit union for at least one month and pay an application fee of up to $20.
- Community resource. Dial 211 or visit 211.org You can find local organizations that can help you if you’re struggling to pay for food, medical care, or housing, including utilities.
- credit consultation. If you regularly use pawn shop loans to meet your objectives, it is a good idea to consult with the pawn shop. National Foundation for Credit CounselingThe initial consultation with a credit counselor is usually free. For a small fee, counselors can also “build a budget, consider options for paying off debt, and refer you to other agencies to help with bills.”