Look, I get it. When you need cash today and your bank account is looking pretty rough, a pawnshop might seem like the easiest answer. I've been in mortgage lending since I was 18 and I've worked with thousands of people navigating tough financial spots. The pawnshop route feels quick and simple because it is, but that convenience comes at a real cost.
Last month, I was talking to someone who'd pawned their grandmother's ring for $200 to cover an emergency vet bill. They thought they'd have it back in two weeks. Three months later, after paying over $150 in fees trying to extend the loan, they finally had to let it go. That ring was irreplaceable, and the whole situation could've been avoided if they'd understood what they were actually getting into.
About 30 million Americans use pawnshops every year according to a 2021 National Pawnbrokers Association report, and the industry is projected to grow significantly through 2032. Before you become one of them, let me walk you through exactly how these loans work, what they'll really cost you, and what alternatives might serve you better.
A pawnshop loan is a secured loan where you're putting up collateral to back the money you're borrowing. The item you bring in becomes the pawnbroker's security. If you don't pay back the loan plus all the fees, they keep your item and sell it.
The process is straightforward. You bring something valuable into a pawnshop, the broker evaluates it and offers you a loan based on what they think they can sell it for. Most shops will lend you somewhere between 25% and 60% of that resale value. The National Pawnbrokers Association reports that the average pawnshop loan nationwide is just $150.
Unlike traditional loans where you might wait days or weeks for approval, pawnshop loans happen immediately. You agree to the amount, sign paperwork, get a pawn ticket (don't lose this), and leave with cash in hand. Your item stays with the pawnbroker until you repay the full amount plus their fees.
The typical repayment window runs 30 to 60 days, though this varies by state regulations. Some states set maximum interest rates and fee structures, while others give pawnbrokers more flexibility.
The mechanics are simple, but understanding what's really happening at each stage matters more than you'd think.
Let me break down a real example because the math matters. Say you bring in a $600 guitar. The pawnbroker offers you 25% of its resale value, which is $150. They charge a 25% financing fee on that loan amount, so that's $37.50 in fees for the first month.
If you can't pay back the full $187.50 in 30 days, you might pay just the $37.50 fee to extend the loan another month. Now you've paid $37.50 in fees but still owe the original $150 plus another $37.50 for the second month. After two months, you've paid $75 in fees and still owe the original $150 loan. That's a 50% fee on a $150 loan over 60 days, which converts to an annual percentage rate well over 200%.
This is why I always tell people: if you can't afford to repay the loan plus fees within the first 30 days, you probably shouldn't take the loan at all.
The cost varies wildly depending on your state's regulations and the individual shop's policies. Most pawnshops don't advertise their fees as an annual percentage rate (APR), but when you convert those monthly fees to an APR, the numbers get shocking. According to ConsumerAffairs reporting on pawnshop loans, pawnshop loan APRs can reach 200% or higher.
The average personal loan APR was around 12.49% as of early 2024. Even credit cards average around 16% APR. A pawnshop loan at 200% APR costs roughly 16 times more than a credit card.
Here's a worked example:
The difference is stark. That same $500 costs you $15 through a personal loan or $300 through a pawnshop loan.
Pawnshops accept a variety of items, but they're selective because they need confidence they can resell it.
One reason pawnshop loans are accessible is that qualification requirements are minimal compared to traditional lending. You don't need good credit, steady income, or even a bank account.
This accessibility is why pawnshops serve communities that banks often don't. According to National Pawnbrokers Association data, approximately 30 million Americans without traditional banking access use pawnshops annually.
Let me be straight with you about what pawnshop loans offer and where they fall short.
Before you walk into a pawnshop, consider these alternatives that often make more financial sense.
There are times when pawnshop loans are not right. In some situations, they are the best option.
Some situations scream, "Don't do this!"
No. If you don't pay back a loan, it won't show up on your credit report or hurt your credit score because pawnshops don't report to credit bureaus. The only thing that happens is that you lose the item you pawned. You won't get calls from debt collectors, threats of legal action, or damage to your credit. The pawnshop just keeps your collateral and sells it. This is not the same as not paying your credit card or personal loan on time, which would hurt your credit. Even if you pay back on time, it won't help your credit because pawnshops don't report payment activity at all.
No, once the pawnshop sells your item after you've missed a payment, it's gone for good. You can't get it back. If you don't pay or ask for more time, the pawnshop can sell your item after the agreed-upon time has passed. Some stores give you a few days to a week of grace, but this isn't always the case. If you know you're going to be late, call the pawnshop before your due date to talk about your options for getting more time. You can't get it back once it's sold, and the new owner bought it legally.
The amount depends on the item's condition, brand, material value, and what the pawnbroker thinks they can sell it for. Most of the time, pawnshops will give you 25% to 60% of what the item could be sold for. For gold and silver, they'll weigh the item and figure out how much it's worth based on current market prices. They use the 4 Cs (cut, clarity, color, and carat) to rate the quality of diamonds. Designer jewelry from companies like Tiffany or Cartier might get more money. But sentimental value doesn't matter. A pawnbroker might give you $250 to $400 for a gold ring you bought for $1,000 a few years ago, depending on how much gold it weighs and what the market price is right now.
If you lose your pawn ticket, you have a big problem because it's your proof of ownership and contract. Policies are different, but most say you need the ticket to get your item. Some stores will help you if you can show them proof of identity and transaction details. They may even give you a replacement after a certain amount of time and charge you a fee. Some businesses have strict rules that say you can't get your item back without the ticket, no matter what proof you have. When you get your ticket, treat it like money and put it somewhere safe right away. Take a picture as a backup. If you lose it, don't wait until your due date to call the pawnshop. Do it right away.
Most pawnshops are open on weekends and during regular business hours because they are retail stores that sell used goods and give out loans. A lot of them are open six or seven days a week, but their hours may be shorter on Sundays. Hours on holidays are different. If you want to redeem close to your due date and that date is on or near a holiday or weekend, call ahead to make sure the hours are correct. Most pawn shops put their hours on their storefront, website, or Google Business listing.
This depends on what you are selling. You can usually pawn things like jewelry, electronics, or instruments that don't have liens or title documents, even if you still owe money on a credit card or payment plan. You usually can't pawn a car or get a title loan if someone else has the title. If a pawn shop thinks you don't fully own something, they might not take it. You should have full ownership rights, both morally and legally. If you don't pay back both the original payment plan and the pawn loan, you could end up in trouble with more than one creditor.
They both help people who need money quickly and can't get traditional credit, but they do it in very different ways. Payday loans are short-term loans that don't require collateral and are due on your next payday. They have very high interest rates, often 400% APR or more. If you don't pay, your credit could be hurt and collection efforts could be very aggressive. When you take out a pawnshop loan, you put up property as collateral. The interest rates are usually between 60% and 240% APR, which is still high but usually lower than payday loans. If you don't pay back the loan, you just lose your item and nothing else happens. Neither choice is great, but pawnshop loans usually have fewer problems because they don't hurt your credit or involve collections.
Yes, for sure. Pawnshops don't look at your credit at all because they don't lend you money based on how good your credit is. They will lend you money based on how much the item you are using as collateral is worth. It doesn't matter if your credit score is 300 or 800. The amount they lend you is based only on what they think they can sell your item for if you don't come back. This is why people with bad credit or no credit history often go to pawn shops. The tradeoff is that you're putting something valuable at risk and paying a lot of money to get to it.
Yes, sometimes. Some brokers may value your item differently, and some may be more flexible than others. If you think the first offer is too low, you can try to negotiate by bringing up things that the broker may have missed, such as the item's brand value, condition, recent market prices, or original cost. Being polite and knowing what you're talking about is helpful. You can strengthen your case by bringing documents like original receipts, certificates of authenticity, or proof of recent sales of similar items. But pawnbrokers also need to look out for their own interests. If you don't like the offer from one pawnshop, go to a few more and compare. Offers can be very different from one store to the next.
You have options if your due date is coming up and you can't afford to pay it back. First, see if you can get together enough money to at least pay the fees and get the loan for a longer time. Second, get in touch with the pawnshop before your due date to talk about what you need. Some may offer payment plans, but they don't have to. Third, accept that you will lose the item and be okay with that. If you know you won't be able to pay back the principal, don't keep paying extension fees. Fourth, try to sell something else or borrow money from family to get your pawned item back before the deadline.
Fact Checked