Are pawnshop loans a good idea if you’re cash-strapped?

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.

Debt is generally small. According to the National Pawnbrokers Association, the average pawnbroker loan is $150 nationwide and is paid off in about 30 days.

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.

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

  • 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

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