How Do Pawn Shop Loans and Pawning Work?
While pawn shop loans can provide you with the funds you need quickly, they can quickly get expensive. The good news is there are a number of alternatives such as personal loans and credit cards that come with lower interest rates and fees. Here's how pawn shop loans and pawning work and some alternative options you can consider.
How do pawn shop loans work?
Pawn shop loans are short-term loans that are secured with something valuable you own, like a guitar or a piece of jewelry. If you opt for a pawn shop loan, your loan amount will be based on the value of the item your pawning.
If you own a diamond ring, for instance, you can bring it to a pawn shop loan to get fast cash. Once the pawnbroker determines the ring’s value, they may offer you a loan that can range between 25% and 60% of its value. You can accept the pawn shop loan and agree to repay the loan in one lump on a future date. If you do not repay the loan, the pawn shop keeps your property.
Drawbacks of pawn shop loans
As with all financing products, pawns shop loans and pawning come with several disadvantages including:
High interest rates
If you take out a pawn shop loan, you’ll likely have to pay a high-interest rate. Depending on the loan, you may owe interest charges ranging from 5% to 25% a month. This can cause your pawn shop loan to become very expensive and much harder to pay off.
Other fees
In addition to high-interest rates, you may be on the hook for other pawn shop loan fees that cover costs such as origination, appraisal, insurance, and storage. These additional fees can significantly increase the cost of your loan.
Risk of losing collateral
If you don’t repay a pawn shop loan on time, there’s a good chance the pawn shop may sell your item. This can be a big drawback with pawn shop loans, especially if your item has sentimental value or is something you hope to use again in the future.
Alternatives to pawn shop loans
If you want to avoid getting a pawn shop loan, here are some alternative options to pawning you can look into.
Personal loans
With a personal loan, you receive a lump sum of money and pay it back with interest via fixed monthly payments over an agreed upon term. There are a variety of personal loan options and many of them are more affordable than pawn shop loans.
Credit cards
Credit cards can be another great alternative to pawn shop loans, as they typically come with lower interest rates. If you get approved for a credit card, you’ll be able to spend as much or as little as you’d like up to your set credit limit. Once you rack up a balance, you’ll need to make at least the minimum monthly payment every month. If you don’t pay your balance in full, you’ll face interest charges.
Payroll advance
If you currently have a job, your employer may offer a payroll advance and give you a portion of your pay before your next payday. Note that not all employers are open to payroll advance, so this option may not be available for you.
Selling unused or unwanted items
Chances are you have unused or unwanted items lying around your home. You can sell them on places like Facebook Marketplace or Craigslist. If you go this route, keep in mind that it may take some time to receive the cash.
Help from a family member or friend
Your loved ones may give you financial help in times of need. If you need money to cover an unexpected expense, don’t be afraid to ask a family member or friend for help. Be sure to put your repayment plan in writing so that everyone is on the same page.
4 Advance America loan alternatives to pawn shop loans
Here are some fast cash loan options from Advance America that you can consider if you’re looking for alternatives to pawn shop loans:
Payday loans
Payday loans are short-term, small dollar loans that can give you some extra funds to cover expenses before your next payday. Borrowers will typically repay this type of loan in two to four weeks, when they receive their next paycheck.
Installment loans
With installment loans, you’ll receive a lump sum of money that you can repay over time in fixed monthly payments, or installments. Repayment periods for these loans can last from a few months to a few years, depending on the lender and loan terms.
Title loans
Title loans are secured loans that allow you to use your car title as collateral. The lender will appraise your vehicle and offer you a loan amount worth a percentage of its value. Then, they’ll give you the funds and hold onto your car title temporarily. You can keep driving your car as you repay a title loan.
Lines of credit
Lines of credit are flexible loans that allow you to withdraw funds as needed, up to your set credit limit. You can repay these loans all at once or over time, and will only pay interest on the amount you borrow.
Should I get a pawn shop loan?
When deciding whether to get a pawn shop loan, you should consider your financial situation, needs, and options. As these loans often come with high interest rates and you may risk losing the item you used as collateral, you may want to consider alternatives to a pawn shop loan. Borrowing from a family member or friend, selling unused or unwanted items, or getting a fast cash loan from Advance America may be better ways to receive funds quickly so you can cover expenses right away.
Consider alternatives to pawn shop loans?
While pawn shop loans can get you cash quickly, their high-interest rates and fees make them a very expensive option. Advance America offers alternatives like payday loans and installment loans. You can apply for these loans from the comfort of your own home and get approved quickly, even if you don’t have great credit.
