Have you ever tried to apply for a bank loan and been stuck in its infinite paperwork loop? With a pawn shop loan, you can work things out quickly! These systematic short-term loans are provided by American pawnshops in cash against collateral of decent value. 

What’s good about it? Well, you get immediate cash at your disposal without the risk of compromising your credit score, albeit for higher interest charges. In this guide, we offer a detailed assessment of a pawnshop loan so that you can take this calculated risk with all the information you need! 

What is a Pawn Shop Loan? 

Pawn shop loans are short-term loans received in cash in exchange for valuable collateral, such as jewelry, electronic items, machine tools, branded accessories, and musical instruments. The amount received is usually determined as a percentage of the collateral’s current retail value, which the pawnbroker evaluates. 

While it is generally up to USD 150, it may exceed that amount if the collateral provided is rare or of immensely high value. For those who don’t have collateral or are exploring other options, there are ways to secure a loan without needing a bank account. The usual duration for which a pawnshop loan is granted is 30 days, with slight variations among specific pawnshop brokers. The borrower may repay the loan within this period, along with the interest charges, to free up their collateral. 

In case of an oversight, the borrower still has the option to pay an extra fee and extend the forfeit date for another 30 or 60 days. If the pawn shop loan is not repaid by this date, the collateral’s ownership will be transferred to the pawnbroker as a final resort. Some pawnbrokers also provide a grace period of 1-3 days after the forfeiture date as a goodwill gesture to regular borrowers. 

Nevertheless, the pawnbroker decides the pawnshop loan’s duration, amount, and interest fees at his discretion, in compliance with the state’s consumer protection laws.

How Does a Pawn Shop Loan Work?

If you’re wondering how a pawn shop loan works, rest assured that it’s easy, simple, and hassle-free. Here’s how to apply for a pawnshop loan in just a few steps and secure immediate cash for emergencies:

Step 1: Bring a Collateral

The first step is to bring collateral to the pawnshop of your choice. It can be anything of significant value, such as gold or diamond jewelry, tools and electronic items, musical instruments, or branded accessories, including purses, wallets, handbags, watches, and more. 

Step 2: Get into a Loan Agreement based on the Collateral’s Valuation

The pawnshop owner or broker evaluates the collateral’s current market value and grants you a percentage of it as a pawn loan. 

You can discuss the terms and conditions regarding the loan amount, interest charges, loan duration, repayment date, and the extension or grace period provided to finalize the loan disbursement process.

Step 3: Take the Pawn Loan 

Once the terms have been agreed upon, you can take the cash amount and hand over the collateral. You’re good to go now! Remember the maturity date and free up the collateral by then to avoid the loss of your valuables. 

Step 4: Repay the loan before maturity or ask for an extension

The maturity date, usually 30 days from the grant of the pawn loan, is the last date to repay the original amount and the interest charges. If you fail, it’s okay to ask for an extension. 

Many pawnbrokers provide an extension or grace period as a goodwill gesture to borrowers upon paying a minimal extension fee. The extended date becomes the new forfeit date of the collateral.

Step 5: Repay the loan within the extended period if received 

If you’ve received an extended date from the pawnbroker, repay the pawn shop loan by then. The repayment must be made in cash, along with the interest and other pending charges. 

If you fail to do so, the pawnbroker may get ownership of your collateral and freely sell it to compensate for his losses. 

Pros and Cons of Pawn Shop Loans 

There are always two sides to the same coin, and the saying also stands true for pawn shop loans. It’s essential to be mindful of the pros and cons of pawn loans to make a calculated decision on their benefits and challenges. Here are a few pointers for your reference:  

Pros

• You can receive a pawn loan immediately without much paperwork. 
• There are no stringent eligibility criteria or credit check requirements for loan disbursement.
• Your credit score remains intact, and there are no legal repercussions for repayment failure. 
• You may extend your pawn shop loan repayment date if the pawnbroker allows.
• You can obtain a higher amount if your collateral is too rare or has a significant market value.

Cons 

• You may risk losing your valuable collateral if you don’t repay the pawnshop loan in time.
• The interest charges are significantly higher compared to traditional bank loans. It may range between an annual percentage rate (APR) of 6% to 36%. 
• Limited maturity periods and lower loan amounts restrict pawn loans as short-term loans. 
• Since the collateral’s valuation is done solely by the pawnbroker, you may not get a fair pawn loan amount in exchange for the collateral you provide. Negotiation is key to resolving such an issue. 

Alternatives to Pawn Shop Loans

While pawn shop loans offer a fantastic option for getting immediate cash credit with minimal hassle and the risk of legal consequences, exploring some of their alternatives might be interesting if they’re not reasonably accessible. Below are briefly described some of these alternatives.

Title Loans

Title loans are short-term loans taken against the title of an owned asset. The most common type is a vehicle title loan, where the title of a vehicle is handed over to the lender, who, in exchange, provides a cash loan to the borrower worth a small percentage of the vehicle’s value. 

The maturity or repayment period ranges between 15 to 30 days. However, the interest rates are significantly high, with APRs mostly exceeding 100%. If you fail to repay a title loan, you may lose the title or ownership of your vehicle to the lender. 

Payday Loans

Payday loans are short-term loans you may have to repay by your next paycheck date. So, the approximate maturity period is two to four weeks. The loan amount usually remains under USD 500. 

However, the interest rates of payday loans are among the highest, generally exceeding 400%, according to the Consumer Financial Protection Bureau (CFPB). If you’re unable to repay the debt in time, you may extend it to the next paycheck date or further at your convenience. 

Cash Advance Loan

Cash advance loans are short-term loans that can be received as cash from several lenders, such as banks, credit cards, payment merchants, and lending applications. 

These advances are granted for a limited period of 15 to 30 days and have high interest rates. Additionally, the platform offering the advances may also accrue additional fees. However, you get the cash in your hand when needed. 

The Bottom Line

Pawn shop loans are an excellent choice for quick cash with little paperwork hassle. You only need to find a pawnshop loan broker and approach with valuable collateral. The broker will assess the current value of the collateral and determine a percentage of it to set as the loan amount. 

There you go! You can take your cash home, return it on maturity, and free up your collateral. 

It’s an excellent option for cash-based emergencies since you do not risk any legal consequences apart from losing your collateral due to repayment failures. 

If you’re unsure or facing difficulties, check out Radcred, one of the best loan providers in the market.