Pawnshop Loans: What Is a Pawn Loan and How Do They Work?

Ever since the concept of currency entered human consciousness thousands of years ago, people have wanted — and needed — enough money to make ends meet. Yet long before the current era of credit scores and online lenders, those in need of short-term loans had few options when it came to getting their hands on cold, hard cash. One option that has existed nearly as long as money itself, however, is that of a pawnbroker.

Pawnbrokers are individuals or businesses that loan money to borrowers in exchange for personal property that will be returned upon repayment. The term “pawnbroker” dates back to the 1600s, and the occupation itself has its origins in Ancient Greece. Yet despite the longevity of this type of lending arrangement, pawnbrokers and pawn shops have developed a less-than-favorable reputation over the millennia.

So is dealing with a pawnbroker a bad idea, or is there more to the story? Let’s take a closer look as we explore the ins-and-outs of pawn shop loans.

What Is a Pawn Loan?

Exactly what is a pawn loan? Essentially, it’s a financial arrangement in which a borrower temporarily gives a pawnbroker an item of value in exchange for an agreed-upon sum of money. As long as the borrower is able to repay loan amount (plus interest) within the allotted amount of time, the pawnbroker will return the personal possession to its owner. If, however, the terms of repayment are not met, the pawnbroker gains ownership of the item and can do with it as they please.

How Do Pawnshop Loans Work?

So how do pawn shop loans work in the real world? To give you a clearer understanding, here’s a possible scenario:

Say your inadvertently park your car in a tow-away zone and leave it there overnight. When you go look for your vehicle the next morning, it’s nowhere in sight. That’s when you see the No Parking sign and the towing company’s phone number. You call them up and find out it’s going to cost $250 to get your car back, plus the cost of transportation to the lot. So all of sudden you need to come up with around $300.

You just paid all your bills — including this month’s rent — so if you use the money in your bank account, you might not be able to afford food later in the week. Payday’s not till next Friday, and using your maxed-out credit card simply isn’t an option. This is exactly when a pawn shop loan can come to the rescue.

If you have an item of value, such as expensive jewelry, a high-end power tool, or a relatively new television, you can take that possession to a pawnshop, where a pawnbroker will assess its value. Based on that determination, the pawnbroker could hand you enough cash to reclaim your car. Then, when you get paid next week, you can repay the pawnbroker and get your stuff back. And perhaps the best part is that all of this occurs without involving any banking institutions or filling out any lengthy applications for a credit check.

Pawnshop Loans vs Personal Loans

There’s little comparison between pawnshop loans and personal loans when it comes to which one is a better deal. Even people with below-average credit scores are likely to qualify for personal loans that are less expensive than those with pawnshops. So unless you’re facing an absolutely emergency and need money this instant, a personal loan is always preferable to its pawnshop counterpart.

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Interest Rates

As with all formal lending arrangements, pawnshop loans involve fees. However, instead of referring to their APRs as interest rates, like the majority of banks and online lenders do, many pawnbrokers simply call their charges fees. Fees vary by state and pawn shop and could wind up being up to ten times higher than what a typical online lender might charge. And depending upon the pawnshop’s policies and what you’re offering up as collateral, you might have to pay an additional amount for storage, appraisal, and insurance.This is why many people frown upon pawnshop loans — most of the time, there are simply better options out there.

Typical Loan Terms

As a rule of thumb, expect the average pawnshop to offer you somewhere between 25% and 60% of your item’s resale value. And, in general, most loans with pawnbrokers are based on 30-day terms, though many pawn shops will gladly extend your term in for an additional fee. As long as you repay your loan within the agreed-upon amount of time, you’ll be able to reclaim your item without any incident.

What Can You Pawn?

Different pawnbrokers have different rules regarding what they will and won’t accept in exchange for cash. Typically, though, if the demand exists, you’ll be able to secure a loan.
Here’s a list of a few items borrowers will likely always be able to use for pawn shop lawn.

  • Jewelry
  • Musical instruments
  • Digital cameras
  • Modern electronics
  • Weapons and firearms
  • Power tools

Pros and Cons of Pawn Loans

To further help you determine if this type of arrangement might be right for you, here’s a quick look at the pros and cons of pawn shop loans.


  • No credit check means no lengthy application to fill out
  • Pawnbrokers can give you cash right away
  • Cheaper than payday loans and vehicle title loans
  • Good option for people who don’t qualify for personal loans
  • No legal requirement to repay; no risk of facing debt collectors 


  • Much higher fees/interest rates than banks and online lenders
  • If you can’t pay back the loan in time, you could lose your possessions
  • Pawn shops can get robbed or struck by natural disasters
  • You might need a proof of purchase at some pawn shops
  • Pawnshop loans must take place in person, not online

Alternatives to Pawning

If you don’t have any possessions to pawn, and you absolutely need to get hold of some cash right away, there are other options available. Perhaps you could ask your employer for an advance, or depending on what you need the money for, consider asking for an extension first. And, of course, you can always sell your items of value outright, and forget about taking out a loan entirely.
You may also have heard about payday loans and car title loans, but these other options aren’t often recommended. Compared to loans from a pawnshop, payday loans can be twice as expensive — or even more. So if you need cash now and have a choice between a pawnshop and title loans, always go to the pawnshop because you’re likely to save a boatload of money.  As mentioned before, personal loans are the best option if you’re comparing pawnshop loans, payday loans and car title loans.

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