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Pawn Shop Loan

William Anderson

There are times when people are in need of quick cash. Loans or credit card at times is not possible. And what do you do if you need money right away? Back in the olden days, there were money lenders, who lent you quick cash for an interest.

Needless to say, moneylenders were popular and had an influence on society because there was no other way people could raise money quickly.

There were no banks and the concept of loans as we know today did not exist. Given the economic condition then, people needed quick cash pretty often – to buy food, get medicines, or pay rent. Moneylenders wielded a lot of power back in those days.

Although society has progressed and people have better means for funding today, there are still times when people need quick cash without having to go through the long drawn process of a loan. Traditional lending is all right for something you have time to prepare for, but what if you need money within a few hours?

There are places like money lenders that still exist today, albeit in a modern form. They are called pawn shops, and offer quick cash without any complicated procedure.

What exactly are pawn shops?

Pawn shops are modern day modern lenders. If you need quick cash and have a basement full of valuable stuff that's gathering dust, head to a pawnshop. At a pawnshop, you get quick cash by depositing something of value. However, before you head to a pawn shop for the first time, you should learn how the transactions work.

The concept of pawn shops has been gaining popularity as an increasing number of people look for short-term financing without resorting to conventional options like small business credit cards, home equity mortgage or borrowing form family and friends. But most first timers have no idea how pawn shops works, and end up getting ripped off.

Many pawn shops have a bad reputation, even though plenty of people use them to get quick cash. Pawnshops are usually portrayed as dark shady places by the media, but they aren't so. Because of the image painted by the media, most people imagine pawnshops to be owned and operated by criminals or gangsters. Well, until they see the show Pawn Stars on the History Channel!

But pawnshops are completely regulated at the federal level as well as state and local levels. Some of the entities that govern pawn shops are:

  • USA Patriot Act
  • Truth-in-Lending Act
  • Bank Secrecy Act and IRS regulations requiring reporting of certain cash transactions
  • Trading with the Enemy Act and related executive orders and regulations
  • Privacy provisions of the Gramm-Leach-Bliley Financial Services Modernization Act

The spokesman for the National Pawnbrokers Association Emmett Murphy says that most pawnshops are perfectly clean, well-lit and legitimate places run by genuine people who have been providing excellent service for years.

In order to find legitimate pawn shops, customers are advised to check with the local Better Business Bureau or look on the NPA’s website for stores in the region.

To put it simply, customers pledge valuables as collateral, and in return, pawnbrokers lend them money. When customers pay off the loan, their item is returned to them. The collateral can be anything of value, from jewelry to electronics to furniture. If the borrower chooses to not redeem the collateral, the items are sold to other consumers at a certain price. Of course this may be different for start up unsecured business loans depending on the lender.

Pawn Shop Loan

The loan process

Since pawnshops offer collateral-based loans, it is secured by offering something of value. You take something valuable that you own to the pawn shop and if the pawnbroker is interested, you will be offered a loan against it. The pawnbroker then keeps the item until you pay off the loan.

You can take a pawnshop loan against any valuable, as long as the pawn broker is interested. It could be an iPad, a desktop computer, a gold watch, or a bicycle. The loan amount is usually a fraction of the actual value of the item. Although you could easily sell the item outright and get more money, pawnbrokers are more interested in loans because they are more profitable.

Remember that you have to provide all details of the item and preferably proof that you are the actual owner. This is done to make sure the items are genuine and not stolen.

You could steal somebody else's iPhone and take it to a pawn shop, but if you cannot provide documentation of ownership, the item will not be eligible. Be prepared to answer a lot of questions about the item you want to use as collateral.

Once your item is taken by the pawnbroker, you will be given a pawn ticket. Safely keep this ticket because it is not only the receipt for your item, but also lists the terms of the loan, including fees, description of the item, expiration date, and so on.


When it comes to paying off the loan, there are two options: you either return the money and take your item back, or you choose to not take the item back.

If you choose to pay off the loan, you have to pay the loan amount added with all the fees within the deadline, which is usually between one and four months. If you don’t return the money, the pawnshop keeps your item.

There is no consequence of this, aside from that you don't get your item back. You will face no collection action and your credit isn't affected. According to the National Pawnbrokers Association, about 80 percent of all pawnshop customers reclaim their items, because the same item can be used repeatedly for a loan.

In some regions, the loan period can also be extended for up to several months, but it incurs additional charges.

Calculating the interest rate

What is most complicated about a pawn shop loan is the interest rate. This is because the rules regarding the fees differ from one state to another, and there is also no fixed rate of interest rate, unlike other traditional loans. Since the term “interest rate” can be confusing, pawn shop experts advise customers to calculate the total allowable “finance charge instead.

All pawnshop loans are state-regulated, with ‘finance charges’ varying from 5 percent per month to 25 percent per month. In some states, the ‘interest rate’ is capped at three percent per month, but pawnshops in some states can add their own charges and make the total allowable finance charge as high as 25 percent per month.

However, the pawn industry has been rapidly evolving and the maximum finance charges are being greatly reduced by many pawn shops. The larger the pawn loans, the lower the finance charges. Pawn loans aren’t restricted to small amounts anymore. They are also used for bigger amounts.

But pawn shops are usually used for ‘safety net loans’ in serious emergencies. The typical charge for a pawn loan is lower than the cost of a disconnected utility bill or a bounced check.

To know the maximum rates and rules regarding pawnshop transactions in each region, it is best to check the NPA’s website. Before closing the deal, make sure the pawnbroker clearly explains all the fees involved and also the terms of the loan.

Pawn Shop Loan

Advantages of pawn shop loans

A pawn shop is a good place to find some quick cash if you're willing to part with some of your valuables. If you rummage in the attic or in the basement, you will find valuables coins or other items that you didn't know about.

Some items may be good enough to be sold in a garage sale. Such items can be used to borrow a loan against. Most people these days have smart phones, electronics, and designer clothes and shoes, which can be used as collateral for pawn shop loans. Almost anything of resale value can be borrowed against.

Pawn shop loans may not be as commonly heard of as personal bank loans, but they are used by many people in need of quick cash. The money can be used for repairing a leaking roof ahead of winter or buying gas for your car. In some cases, you can also keep your car or other vehicle as collateral.

There are some definite advantages of a pawn loan. Some of them are:

Multiple collateral options

The biggest advantage of pawn shop loans is the variety of items you can use as collateral. In fact, many people prefer to buy things from pawn shops because they sell pre-owned goods at a very low price. They are much like second-hand stores.

That is why pawn shops take a wide range of items as collateral. You can use your piano, keyboard, or guitar, your jewelry or accessories, electronics such as phones, gaming consoles, computers, and tablets, antiques like expensive pens and watches, designer clothes and shoes, genuine leather goods and other valuable items. Because the collateral options are so varied, you are always certain to find something to borrow money against.


Pawn loans are probably the most convenient way to get some quick money. There may already be a dozen pawn loan shops around you yet you may not know. When you search online for 24-hour pawn shops, there will be many options that are conveniently located. All you have to do is find more details about each of the shops to settle for the one that suits you best.

The process of obtaining a pawn loan is also easy because pawn brokers have years of experience evaluating items and will not take up an inordinate amount of time to come up with a loan amount. The paperwork is simple to complete, and the whole process takes only a few minutes.

Zero credit concerns

When it comes to loans, people get concerned about their credit history. They worry that either their credit score will deny them the loan or that taking the loan will affect their credit. But pawn shops have no effect on your credit at all.

You simply have to provide proof of ownership of the collateral, complete some paperwork, and get the loan. As long as you are legitimate and the item is genuine, nothing else is ever required.

Low risk

When it comes to other forms of loans where collateral is required, there are big risks involved. If you don't pay off the loan within the deadline, the collateral will be seized. In most cases, the collateral includes property, vehicles, stocks, bonds, or other such important assets.

You may also face collection action and credit risk. But there is no such risk in pawn loans. If you don't pay off the loan, you don't get your item back. That's all the risk there is.


Pawn loans are great in emergencies because they are a quick way to get some cash. They are processed quickly because there's minimal paperwork and the term are easy to understand. You can walk out with the cash you need in only a few minutes in most cases.

Pawn loans: Things to know

Before you decide to pawn a valuable item, there are certain things you must know. For the best chances of getting a loan, avoiding pawning anything outdated, cheap, damaged, or difficult to sell. Remember that pawn brokers determine the saleability of the item, so it's best to pawn precious items like jewelry or silver coins, high-quality multi-utility tools, electronics, and musical instruments.

Another vital thing to remember is that pawn customers do not enjoy the same protection under federal law that comes with other types of loans. Pawn transactions are not reported to the credit bureaus. Instead, they are reported to law enforcement agencies.

Depending on the region, pawn shops may need to report daily, giving out sensitive personal information about the borrowers (such as address, gender, ethnicity). However, the information is protected and never shared or distributed.

Pawn loans are easy and safe and have no credit risk. However, before heading to a pawn shop, it is important to find out all the information about the pawnbroker and make sure that you understand the terms and details. If you are seeking funds for your startup then consider a new business line of credit instead.