People who don’t qualify for a typical loan or who reside in an area where banks and credit unions are scarce may look to pawnshops for alternative lending options. Pawnshop loans can be a quick and easy option to borrow money for some people. 

Pawnshops deal in selling people’s possessions in exchange for cash. Pawnshop loans, on the other hand, may not seem as appealing once you know that you will be required to pay large costs and that they will not assist you in establishing credit.

What Exactly Is a Pawnshop Loan?

Loans obtained from pawnshops fall under the category of secured loans, which are distinguished from unsecured loans by the requirement that the borrower provides collateral for the loan. 

This is the object you bring to the pawnshop and leave in exchange for cash. Your pawn will be returned to you if you are successful in paying off the loan on schedule. If you don’t pay back the loan, however, the pawnshop has the right to keep the item you pawned and use the proceeds to cover the cost of the loan.

There are no additional qualifications to qualify for a loan from a pawnshop other than the possession of an asset of some kind. That is their competitive advantage; in contrast to other types of loans, which depend on verifying your income and credit history, you may walk into a pawnshop even if you have neither of those things and still acquire a loan.

For this very reason, loans from pawnshops are considered to be one of the earliest types of lending. Because our ancestors did not have access to things like FICO ratings or pay stubs to demonstrate to lenders that they were creditworthy, they relied on a system that required them to put up collateral instead.

How Do Pawnshop Loans Work?

There is no interest added to the loans that are provided by pawnshops. However, because the borrower is liable for paying financing fees, the overall cost of the loan may be significantly greater than the cost of other available loan options.

The regulations that govern the fees that pawnshops are allowed to charge differ from state to state, but you may wind up paying an amount that is many times higher than the interest that is paid on traditional loans.

Let’s say you take a guitar worth $500 to a pawnshop and they offer you 25% of the instrument’s resale value, which comes to $125. On top of that, let’s say the pawnshop assesses an additional 25% fee for financing the transaction. That implies the financing fees will be $25, bringing the total amount you owe to $150.

In the event that you accept the terms of the loan, the pawnshop would normally pay you cash on the spot. In addition to this, they will provide you with a pawn tick that will serve as a receipt for the item that you have pawned. Put that ticket away in a secure location. If you misplace it, there is a chance that you won’t be able to get it back.

Pawnshop Loans: Pros and Cons

Use the list that is provided below as a guide if you are considering applying for this kind of personal loan. Are you able to benefit from the advantages despite the circumstances? Do you have what it takes to deal with pawnshop loans’ downsides? If this is the case, then you should seriously consider taking a loan from a pawn shop.


  • Quick financing. Within a short period of time, you will be able to acquire the money from the pawnshop and leave with it.
  • Does not have any impact on your credit score. To qualify for a loan, you don’t need to have good credit—or any credit, for that matter. In the event that you do not make a payment, your credit score will not be negatively impacted in any way.
  • If you don’t pay your debts, your creditors won’t bother you. If you don’t pay back the loan, your debt will not be sent to collections and your creditors will not harass you. In this scenario, the pawnshop will simply sell the item that you put up for collateral and keep the proceeds from the sale.


  • Could end up costing a lot. In comparison to other types of personal loans, the financing cost associated with pawn loans might be quite high. Think about this before choosing if this type of financing is best for you.
  • The loan amounts are really low. According to data compiled by the National Pawnbrokers Association, the typical pawn loan is for $150 for a period of 30 days. 
  • Your pawn may be taken away. Forget your pawn ticket at home, and you’ll never get it back. Aside from the loan, your pawn could be taken if you fail to repay it on time. This is how often people, for instance, misplace Grandma’s wedding ring.
  • Defeats the purpose of establishing credit. Getting a pawn loan won’t enhance your credit score because lenders don’t often report to the major bureaus. Lacking a solid credit history can make it difficult to rent or buy a home, obtain favorable financing and credit card terms, and even land a job.

What Are the Requirements for Pawnshop Loans?

One of the advantages of loans from pawn shops is that they are often very simple to obtain. In many situations, all you need is anything of value and a valid form of identification issued by the government.

The following criteria must typically be met in order to obtain a loan from a pawn shop:

  • Valuable item – A valuable object is required in order to get a loan from a pawn business. Collateral could consist of everything from jewels and technology to firearms and vehicles, for instance. Pawn shop loans are possible if you and the pawn shop can reach an agreement on the worth of the item and the amount of the loan.
  • ID from the government – The majority of loan providers will demand you to present a current and valid photo identification card issued by your country’s government before they will even consider giving you a loan.

Remember that in contrast to a traditional installment loan, a loan from a pawn shop does not require a certain credit score or a cosigner to be approved for the loan. You might be allowed to leave with cash on the spot if you bring a valued item along with a valid form of identification from the government.

Are Pawnshop Loans a Good Idea?

If you are in need of cash quickly but do not have the credit history necessary to qualify for a suitable personal loan, you may want to look into alternate forms of lending. Pawnshop loans fall into this category.

Getting a loan from a pawnshop could be a good option if you need a modest amount of money quickly, don’t qualify for other forms of credit, or need a loan but don’t have a bank account. Be aware, though, that compared to other types of credit, they could end up being more expensive for you.

When Does a Pawnshop Loan Make Sense?

If you are in need of financial assistance, your best chance is usually always to make a loan request through one of the more conventional channels. In this manner, you will be able to save money, earn credit, and possibly have access to a bigger quantity of money in the event that you require it. 

However, there are several circumstances in which obtaining a loan from a pawnshop can be of great assistance to you. Some of these circumstances include the following:

  1. You are in desperate need of cash right now. Some personal loan companies offer same-day funding. However, if you’re in a pinch and need cash quickly, a pawnshop is a great option.
  1. You will not require a significant sum of money. Pawnshops will typically only deal with smaller items and will only extend loans for a tiny percentage of the products’ total worth. Therefore, the maximum money you may possibly obtain is somewhere in the neighborhood of a few hundred dollars.
  1. You are in possession of something of worth that you are willing to risk losing, but only under certain conditions. 

If you are unable to repay the loan by the specified deadline, you run the risk of permanently losing the thing that you borrowed money to buy. Because of this, some people wind up losing valuable relics passed down through their families.

Alternatives to Pawnshop Loans

You do not have to resort to taking out a loan from a pawn shop when you have other available choices. The following are some substitutes to loans obtained from pawn shops that might result in a better overall bargain for the borrower:

  1. Inquire about a possible extension. If you are temporarily unable to pay a debt in full, you should contact the creditor to inquire about the possibility of receiving an extension on the payment due date.
  1. Bill payment support. You might be eligible for help paying your bills through a program offered by the government, depending on the specifics of your circumstances.
  1. Pay with a credit card. Even though the interest rates on credit cards might be rather high, it is possible to avoid paying any interest at all by paying off the balance on your credit card before the due date. 

    Even if you are required to pay interest, the average rate is substantially lower than thirty percent per year; this is a significant saving compared to the majority of pawnshop loans.
  1. Sell your item. If you have a valuable item, you might want to think about selling it to a pawn shop or an internet site rather than putting it up for pawn. You won’t have to stress about coming up with the money to pay it back later if you do it this way.
  1. Consider applying for a personal loan. Pawn shop loans often have far higher interest rates than personal loans do. The amount of time it takes to get funded for a personal loan can be as little as the following business day, depending on the lender.

Bottom Line

It’s possible that getting a loan from a pawnshop can appear as the best option for swiftly satisfying a financial requirement. However, taking into consideration the high annual percentage rates (APRs) that are associated with these loans, this solution can come at a significant cost.

Investigate other financing options with more manageable rates of interest, like a credit card or a personal loan, before you make the choice to use the gold necklace that your grandmother wore as collateral for a loan from a pawnshop. Even if it’s only for a short period of time.

It’s possible that both you and your bank account will benefit from this decision. You may have a better understanding of your possibilities by checking both your credit report and your credit score to determine where you stand financially.


But I must explain to you how all this mistaken idea of denouncing pleasure and praising pain was born and I will give you a complete account of the system, and expound the actual teachings of the great explorer of the truth, the master-builder of human happiness. No one rejects, dislikes, or avoids pleasure itself, because it is pleasure, but because those who do not know how to pursue pleasure rationally encounter consequences that are extremely painful.

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