If you don’t qualify for a standard loan or you live in an area where banks and credit unions aren’t readily available, pawn loans could be a good alternative. Pawn loans can be a fast and easy way to get cash for certain people. That’s in part because there are roughly 10,000 pawnshops in the United States.

When you factor in the high-interest rates and lack of credit improvement potential of pawn loans, you may rethink your decision.

Take a look at this information to help you make wise choices with your money.

What Exactly is a Pawn Loan?

When you take out a pawn loan, you are getting a secured loan, which implies that the money you borrow is guaranteed by the collateral you put up. That’s the item you’ll be bringing to the pawnshop and leaving behind with the pawnbroker.

 If you make your loan payments on schedule, you can get your pawn returned. If you don’t, the pawnshop owner keeps the item and sells it to recoup the loan money.

Pawns loans require no credit check as long as you have collateral. Their strength lies in the fact that you can walk into a pawnshop and acquire a loan even if you don’t have a job or good credit.

One of the earliest types of credit, pawn loans has existed for this same reason. After all, our forefathers had to rely on a collateral-based system because they didn’t have FICO ratings or pay stubs to demonstrate their creditworthiness to creditors.

How Do Pawn Loans Work?

Pawn shop laws vary by state, but the borrowing process is usually the same. Debtors pledge property for money. No credit check, application, or income verification is needed. You may need proof of purchase or ownership.

Pawn dealers will undervalue your item. The pawn shop owner decides if you get a percentage of the item’s value. If you require $500 for auto repairs, the item you bring in may need to be valued between $833 and $2,000 if the pawn shop will pay 25% to 60% of its value.

Pawn shop loans must be repaid within 30 days to several months, depending on your state. After repaying your loan, you will receive a ticket to recover your property.

What are the Requirements for Pawn Loans?

Pawn loans, in contrast to bank loans and credit cards, have very low restrictions. One typically does not need to:

  • Complete an application form
  • Prove your employment status 
  • Prove your employment status 

The pawnshop will not verify your credit history either. A person’s credit score won’t increase or decrease due to the loan since the pawnshop won’t publish your payment history. A pawn loan is not a good option if you are working to improve your credit score.

Benefits and Drawbacks of Pawn Loans


  • Your credit rating will not take a hit. You’ll lose the collateral you put up for the loan if you don’t make payments, but the loan default won’t show up on your credit record.
  • Ease of qualification. A pawn loan could be an option if you have trouble being approved for a more conventional loan.
  • Faster access to funds. A pawn loan might potentially get you your money sooner than a typical loan would, as neither your credit nor your income need to be verified.


  • Loss of collateral. Your collateral will be taken away from you if you are unable to repay back the loan. If you think you might not be capable of repaying the loan from the pawn store, it might be a good idea not to put down any valuables.
  • Huge interest rates. The interest and fees associated with loans from pawn shops can add up quickly. The interest rate is variable between 12% and 240%. This may make it hard for some debtors to pay back the loan.
  • Smaller-sized loans. According to the National Pawnbrokers Association, the typical pawn loan is around $150. If you offer a more valuable item, the pawn shop may be willing to loan you extra money. 

    The loan amount from a pawn shop might not be sufficient for your needs if you’re having financial difficulties. In such a circumstance, a small personal loan could be a good option for dealing with your financial difficulties.

Is a Pawnshop Loan a Good Idea?

If you are in need of financial assistance, it is strongly recommended that you pursue conventional loan options first. By doing so, you can put away cash, increase your credit score, and eventually have access to a greater sum of money should the need arise. Meanwhile, a pawn loan might be quite useful in certain situations, such as:

  • You are in urgent need of funds. Some financial institutions that offer personal loans might fund your loan the very same day you apply. However, a pawnshop is a quick and easy way to receive cash if you require it quickly.
  • Your cash needs are minimal, at most. Most pawn shops won’t even consider larger products, and even if they do, they’ll only lend you a small percentage of the merchandise’s original price. That leaves a few hundred bucks as the most you may hope to receive.
  • You’re willing to risk losing something of worth to you. There is a risk of permanent loss of the item if you are unable to repay the loan by its due date. That’s how some people lose priceless relics from their ancestors.

When Does a Pawnshop Loan Make Sense?

When the quantity you need is not too large but you need it for an emergency. If you can afford the high-interest rates and short repayment period, a pawn loan can work for you.

Suppose, for instance, you have an expense of up to $200 that you need to pay for but no money in the bank. Defaulting on payments and losing your item is highly unlikely if you have a well-thought-out plan for repayment and even a backup option. In circumstances like these, getting a pawn loan might be the most prudent choice.

Alternatives to Pawn Loans

While a pawn loan isn’t the best option for everyone, there are other ways to potentially get your hands on some fast cash. Have a look at the following suggestions.

  1. Peer-to-peer online loans. Online peer-to-peer lending is an alternative to traditional lending institutions like banks and credit unions. You will need to submit an application, and your eligibility may be restricted due to poor credit.
  1. Side job roles. Consider exploring some novel approaches to financial independence if you’re in need of supplemental funds for unexpected bills or living costs. It’s possible to make some money doing just about anything, from waiting tables to tutoring kids at the library to renting out a spare room.
  1. Prolonged deadlines. Call your debtors if you think you won’t be able to pay your payments on time and explain your position. They may be willing to give you more time to pay.
  1. Assistance from a friend or family member. When money is tight, the best option is to borrow from someone you know and trust, such as a relative or close friend. In this way, you can avoid paying interest on your loan.

Bottom Line

Pawn loans could appear as a good option for meeting an urgent financial necessity. Unfortunately, the high APRs on these loans means that this option may not come cheap.

It’s best to look into other options, such as credit cards and personal loans, before deciding to pawn off your grandmother’s gold necklace, even if just temporarily. It could be beneficial to you monetarily. Understanding your situation better can be accomplished by reviewing your credit report and credit score.


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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