Disadvantages of Pawn Shop Loans (2024)

FAQs

Disadvantages of Pawn Shop Loans? ›

High cost to borrow: The biggest downside to pawning is the cost. Consumer advocates consider an APR of 36% to be the upper end of affordability for any loan. A pawnshop loan of $100 that costs $10 in fees and is due in 30 days runs about 122% APR.

Generally speaking, it is not a good idea to get a pawnshop loan. Due to their predatory nature, high fees and low loan value, pawnshop loans are often not a great option. If you need money, consider alternatives such as a loan from a friend or family member, a personal loan or a credit card.

Exorbitant Interest and Fees

Interest rates may vary from 12% to 240% or more, depending on whether state law restricts rates pawn shops can charge. You might also be charged storage costs and insurance fees.

You'll need the pawn ticket to reclaim your item when you're ready to repay the loan. If you can't repay it, you'll lose ownership of the item. However, that will be the extent of your losses. Pawn shop loans are not reported to the credit bureaus, so your credit score won't be impacted if you default on payment.

While there's no traditional "penalty" for not repaying a pawn loan, the main consequence is losing the item you've pawned. The pawned item simply becomes forfeited, and the pawn shop owner can now sell your item. However, nothing bad happens to your credit and nothing is reported.

Most pawn shops offer loan amounts of 25% to 60% of your collateral's value. Be aware that pawn shops have high APRs that can make them one of the most expensive options to borrow money. Pawn shops do not require credit checks.

Illegal Goods

You simply can't bring in illegal items like drugs, passports, hazardous waste, and stolen goods to a pawn shop and expect to leave with cash.

Why do pawn shops lowball? - Quora. In any business, you want to buy cheap and sell high. You come in and want to pawn something, the dealer will try to purchase it from you for as little as possible. He will then turn around and try to sell it for as much as possible to make the most gain.

Pawnshops make money by providing personal loans, reselling retail items, and offering auxiliary services, such as money transfers or cellphone activation. Earning interest on loans and profits on retail sales are the principal income sources for the standard business model for a pawnshop.

Typical pawn shop rates could sit anywhere between 3% and 10% per month for the duration of your loan. Your pawnbroker will attach an APR to your loan, which you can use to calculate the total of your loan amount.

What are the typical repayment terms for a pawn shop loan? ›

Repaying a pawn loan

When it's time to pay the loan back, usually 30 to 60 days, you return to pick up the item and pay off the loan (plus fees and interest). Fees vary by state and can include insurance and storage charges. If you can't repay within the original term, you may be able to extend or renew the loan.

When a borrower pays off a pawnshop loan, they can retrieve the item they put in pawn. For those who don't, the pawnshop will keep the item and put it up for sale. There is no other penalty for failing to pay off your loan, but you do lose your item permanently.

To borrow money from a pawnshop, you provide an item as collateral—such as jewelry, a TV or a musical instrument—and the pawnshop provides a loan based on its appraised value. If you don't repay the loan as agreed, the pawnshop can keep your collateral and resell it to recoup their losses.

Let's Summarize… If you don't pay an unsecured loan, you might face late fees and higher interest rates, and your credit score could drop. Debt collectors might call you and send letters. If you still don't pay, the debt could go to a law firm, and they might sue you.

If you plan on getting a loan for a business, a bank loan might be more suitable as it's likely that you'll need a large amount to get your startup running. However, pawn loans are more convenient if there's an emergency, if you're in a hurry, or if you just need a certain amount to tide you over the next few weeks.

According to the search results, pawn shops generally offer loans ranging from 25% to 60% of an item's resale value [1]. So, if you were to pawn a $1000 item, you might receive a loan amount between $250 and $600.